George Osbournes Autumn statement was an intriguing mix of on-going and revised tactics, and below we have summarised how the changes will affect you.
The biggest change of tact has to be in relation to tax credits. Tax credits are benefit payments for those on lower incomes. They effectively ‘top up’ an individual’s earnings so they are able to work, and they are the biggest welfare cost to the government, other than the state pension. In the summer budget, Mr Osbourne vowed to cut tax credits by a whopping 4.4billion from April 2016. This obviously caused many, already hard up families, major concerns. Unsecured loans and borrowing has increased during the last year and The Bank of England warned that this could be an issue for the Financial Policy Committee. Thus Mr Osbournes U turn has meant that those families who thought they would be lose up to £1300 a year will not happen. The Chancellor claimed he could do this as the continued record low interest rates, and ever improving economy, mean that he expects to have more money available than previously thought.
However there still will be the introduction of Universal Credit, which will be phased in over the next five years. This new system merges six benefits, one of which is tax credits into one. Some groups maintain that this will continue to put the squeeze on families, and Citizens Advice say that by 2020, some families with children could be hit if both parents are not working full-time.
Housing benefit was also under scrutiny. From April 2018 onwards the rate of housing benefit paid to the social and private sectors will be capped at the same rate. The Chancellor believes that this can make savings of £ 225m by 2020-2021. Indeed there will be money available for ‘new starter homes’ and house builders will be encouraged to build such properties. The properties will be offered at a 20% discount on prices up to £450,000 in London and £250,000 outside of London. There will also be specialist homes for the elderly, infirm and disabled, and reduced rents for those that are trying to save for a deposit, via shared ownership schemes. The government are trying to reduce the housing benefit bill and actively encourage and aid those starting out on the property ladder, with Mr Osbourne did stating that there was a ‘crisis of home ownership amongst young people’.
There was also encouraging news for those inside London. The government are to introduce a help to buy scheme for all those savers that can raise a 5% deposit. They will then be able to get an interest free loan up to a 5 year period worth up to 40% of the value of the property.
The funds needed for such assistance within the housing sector have to come from somewhere, and there will be a change to stamp duty, the second major change in the last 12 months. As of April 2016 a 3% surcharge on stamp duty will be levied on buy-to-let properties and second homes, raising up to 1billion by 2021. This means that an additional £5,520 will now be payable on the average cost of a buy to let property which currently stands at £184,000.
Chancellor George Osborne said: “More and more homes are being bought as buy-to-lets or second homes. Many of them are cash purchases that aren’t affected by the restrictions I introduced in the Budget on mortgage interest relief; and many of them are bought by those who aren’t resident in this country.
“Frankly, people buying a home to let should not be squeezing out families who can’t afford a home to buy.”
Council tax is also expected to rise by about 2%, as councils which provide social care aim to raise the £2billion required. How much remains to be seen.
As of April 2016, pensioners will get a 2.9% rise equating to £3.35 a week, £119.30 a week overall, to match the rise in average earnings. The government pledged this over a five year period, meaning that the state pension rises each April in accordance with average earning, inflations or 2.5%, whichever is the greatest. Next year all new retirees will receive the new “flat-rate” state pension, set at £155 a week.
More good news for graduates to. Those that started University during or after September 2012 will receive a student loan repayment freeze until April 2021, as opposed to rising with inflation. These graduates can earn up to £21,000 before any student loan repayments would be required. However, nursing students will no longer receive any government bursaries. They will have to take out unsecured loans instead.
The government also reiterated the introduction of a new minimum wage. As of April 2016, anyone aged 25 or over will be paid a minimum of £7.20 per hour, rising eventually to £9 per hour by 2020. There is also the 1% cap on rises in the public sector over the next 4 years, which is much debated issue.
The chancellor also announced increases to free childcare. From 2017, 30 hours of free childcare, as opposed to 15 hours at present, will be available for three and four-year-olds, but only to parents working more than 16 hours and who each earn £100,000 or less.