The Chancellor of the Exchequer, Philip Hammond MP, has delivered his first major Commons speech since assuming the role in the summer. His Autumn Statement to the House of Commons suggested growth in the UK economy would only be 1.4% next year, down from the 2.1% previously predicted. As a result of Brexit and other factors, Mr Hammond said the Government was abandoning its target to run a budget surplus by 2020.
The UK’s financial firms may notice that their clients have less money to spend in the coming years. The Institute of Fiscal Studies (IFS) has predicted that real terms wages in 2021 will be no higher than they were immediately before the 2008 financial crisis.
Paul Johnson, director of the IFS, said:
“One cannot stress how extraordinary and dreadful that is, more than a decade without real earnings growth. We have certainly not seen a period remotely like it in the last 70 years and quite possibly the last 100.”
The threshold for paying income tax will rise to £11,500 from April 2017, and to £12,500 by 2020. Mr Hammond also outlined plans to gradually raise the threshold at which higher rate income tax is paid, so that it will reach £50,000 by 2020. In the shorter term, this threshold will rise from £42,385 to £45,000 in the next tax year.
As expected, there was the announcement of consultations into banning pensions cold calling and into limiting the cash compensation that can be paid for whiplash suffered in motor accidents. However, any money consumers might have expected to save in premiums from the latter proposal may be swallowed up by the Chancellor’s announcement of another rise in Insurance Premium Tax. This tax – paid on motor, pet, medical and household insurance premiums – will rise two percentage points to 12% from June 2017.
One less well reported announcement in the Statement is one that has still attracted much criticism from the pensions industry. The money purchase annual allowance – the amount someone can contribute to a money purchase pension plan once they have started to access the pot flexibly – will be cut from £10,000 to just £4,000 from April 2017.
Another less welcome announcement was that anyone earning more than £43,000 per annum will pay £200 more per year in National Insurance contributions.
Use of salary sacrifice will be severely restricted in the future. From 2017, most employees who receive benefits-in-kind from their employer, such as gym memberships and mobile phone deals, will pay the normal rate of tax on these benefits. Salary sacrifice – where an employee gives up part of their salary in return for a benefit that is taxed at a lower rate – will still be permitted for employer pension contributions, childcare, ultra-low emission cars and cycle to work schemes however.
The Chancellor confirmed he remains committed to the previously announced plan to reduce corporation tax to 17% by 2020.
Mr Hammond also announced a change to the way he will deliver major statements to Parliament. There will no longer be an Autumn Statement, instead the Chancellor will deliver a Budget in both March and November of next year. From 2018, the Budget will take place annually in the autumn, with a Spring Statement earlier in the year.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.