The Contractors Guide to the Autumn Statement
Today's Autumn Statement was a far cry from the "mini budget" of last year but still contained some noteworthy points for the UK's Contractor Community. Here Tony Harris, MD of IFA Contractor Financials takes you through his guide to the 2013 Autumn Statement and how it might affect your finances over the coming year.
A brighter future for the economy...
Osborne was visibly relieved to be able to announce positive growth in the economy since his last Autumn Statement but he was careful to stress that the "job is not yet done" and that "growth is up but growth in productivity is still too low". The OBR forecast for growth in 2013 has doubled from 0.6% to 1.4% and Osborne was able to announce that our economy is now growing faster than any other advanced economy.
...but a warning for homeowners
The Chancellor spoke about his desire to "remove the cap on aspiration" and is aiming to increase employment with another 400,000 jobs this year. This will mean 200,000 less people claiming unemployment benefit and projections show that unemployment will reach the target of 7% by 2015, far earlier than originally predicted.
The good news contained in the jobless forecasts that were made by George Osborne was tempered by knowledge that the Governor of the Bank of England, Mark Carney, is on record as stating that a return back to 7% unemployment would be the trigger for the Monetary Policy Committee to review interest rates. Osborne predicted a drop to 7% unemployment should be reached as early as 2015 meaning that we anticipate heightened interest in remortgaging next year and Contractors seek to take long term fixed rates ahead of a return to more normal bank base rates and dearer borrowing costs.
No change to pension drawdown rules
The industry has been waiting with baited breath since the Treasury ordered a review in March of income drawdown rules. However today they concluded that they are a 'reasonable match' to annuity rates. Our clients who are reaching retirement increasingly view drawdown as a better option than buying a rigid income via an annuity. Clarity that the current rates remain untouched was a welcome relief.
The Chancellor announced that UK domiciled Exchange Traded Funds (ETFs) will be exempt from stamp duty in a move that will be welcomed by the very many Contractors who use these low cost investments via their SIPP. The removal of this cost of transactions will be a boost to product providers and the City.
Central London Property
Capital gains taxes on gains made by non-residents disposing of UK residential property were introduced. This may ultimately cool price inflation in hotspots, particularly in the capital, favoured by wealthy overseas buyers.
Time to tie the knot?
During the Conservative Party Conference earlier this year, Osborne and his cronies announced a plan to introduce a tax break for married couples and civil partners which harks back to the traditional Conservative Party values of old. This will allow a partner to transfer £1,000 of their personal allowance to their spouse as long as neither is a higher rate tax payer and one is earning less than the personal allowance. This will benefit around four million couples with a tax saving of up to £200 and will cost the treasury approximately £700m each year. However, it still needs to go to vote in the House of Commons so it remains to be seen whether even this modest tax incentive ever comes to fruition. Unfortunately, due to the caveats surrounding the marriage relief, it is unlikely that many Contractors will benefit.
The state pension age takes a hit
We have long been championing personal provision over relying on the state when it comes to retirement planning but Osborne further confounded this today with his announcement that the age at which you can claim the state pension should increase to 68 in the mid 2030's and 69 in the mid 2040's.
On the subject of personal provision, the tax-free pensions allowance has been due to fall from its current level of £50,000 to £40,000 in April 2014 and the lifetime allowance will also drop from £1.5m to £1.25m which will be a blow to those Contractors that are making full use of their allowance each year. Thankfully, there were no new surprises in store for pension tax relief but we urge Contractors that haven't already done so, to make contributions now ahead of the limit changing next year.
New jobs for Contractors
This week the Chancellor unveiled his £50bn national infrastructure plan which includes £25bn of funding from insurers L&G, Prudential, Aviva, Standard Life, Friends Life and Scottish Widows. This will go towards a raft of plans to dramatically improve the UK's energy, transport and communications infrastructure. This level of investment should improve the opportunities for thousands of engineering and IT Contractors as your advanced skill set will be in high demand.
Help with Energy bills
The Chancellor has been under increasing pressure from consumers, businesses and the opposition to offer some relief from the proposed hikes to energy prices this winter. We are pleased to confirm that Osborne rose to the challenge and has outlined plans to alter some of the green levies that are included in our energy bills. This should shave around £50 off the average household gas and electric bill which will make a positive difference but we were disappointed that the Chancellor didn't do more to help hard working households afford the rising energy costs. With the original rise calculated at £120, Contractors will still see their energy bills increase by £70 despite Osborne's best efforts.
Changes to your tax bill
Whilst George Osborne stayed true to his word that there would be "no pot of money for tax sweeteners", he did take the opportunity to remind everyone that the income tax allowance is due to increase to £10,000 in April next year. Contrary to speculation in the press and pressure from Nick Clegg to increase the allowance further, Osborne failed to announce any changes to the original plan.
Unfortunately, the costs of increasing the income tax threshold at the bottom will fall heavy on the shoulders of those further up the income ladder. In the 2014/15 tax year, the 20% basic income tax rate will apply to anyone earning between £10,000 and £41,865, above which it will increase to 40%. In future, this threshold will only increase by 1% each year which will result in more middle earners being pulled in to the higher rate tax bracket.
A lucky escape for Help to Buy
After last month's surprise end to Funding for Lending, there has been much speculation in the press in the run up to today's statement that the Chancellor would be forced to rein in his help to buy scheme over fears that it will cause another housing bubble. We are pleased that Osborne stuck to his guns and didn't cave in to the sceptics; Help to Buy has injected some much needed life back in to the housing market and will continue to do so over the next three years. We have already seen some of our clients complete on their Help to Buy purchase and move in to their new home and we are looking forward to helping many more of our clients to do the same in 2014.
Also in the news...
The planned fuel duty rise that was due to come in to affect next year has been cancelled so petrol will be 22p cheaper than it would have been if Labours planned increases had come to fruition.