Chancellor of the exchequer, George Osbourne, delivered yet more updates for the UK budget with his 2014 Autumn Statement, but the question is what exactly it all means for the average voter and how does it potentially impact the outcome of the 2015 general election. Continuing on from our analysis of the full 2014 UK budget statement back in March, we’ve put together our summary and analysis of the Autumn Statement to help you make a bit more sense of how it impacts you and the rest of the UK.
Stamp duty
Perhaps the biggest announcement in the Autumn Statement is the overhaul of the stamp duty house buyers pay. Essentially, what this boils down to is the eradication of the large incremental jumps in stamp duty percentages for the whole amount of the value of the property in favour of increases based on the the amount above the threshold.
For example, in the old system, if you bought a house for £250,000 you would have paid 1% stamp duty (£2,500), but if the cost of the house was a penny more expensive you’d jump up to the 3% bracket and have pay that on the entire amount (£7,500). However, in the new system you’d still jump up to the next increment of stamp duty, which in this case is 5%, but you’d only pay that on the amount above the threshold and you wouldn’t pay anything on the first £125,000, so that’s 1% of £125,000 and 5% of the penny, which comes to £1,250 to pay in total.
The thresholds going forward will be zero to be pain on the first £125,000, 2% on the amount up to £250,000, 5% on the amount up to £925,000, 10% on the amount up to £1,500,000 and 12% on anything above that. The changes took effect immediately on the 4th December 2014, so if you’re in the house buying process right now, you’ll probably benefit from the changes, unless you’re in the low volumes of people looking to buy a multimillion pound mansion.
Obviously, as the changes imply that the majority of people will not only pay less stamp duty when they buy a new house, but will also have a better chance of getting a higher price for their property because the impact of the edge of the cliff thresholds has been significantly reduced, the change is surely a populist one, so it should do the conservatives a little good when it comes to the 2015 general election. While we’re certain this isn’t going to be enough on its own to sway the voting public, it could be instrumental in the overall decision making process, especially for people that benefit from the change between now and the election.
There are a couple of other implications to take into account along the way too as a result of the change to the stamp duty. The first, and most important in terms of the voting public and the election next year is that it could help to grease the wheels of the housing market, meaning more people will look to sell their property going forward, because the barriers to a lucrative sale have been reduced. This could mean that public coffers for stamp duty might not go down as a result of the change (reduced stamp duty + increased volume of house sales = no loss of public revenue), and also result in empty houses coming back into the marketplace because of the increased financial benefit of higher house prices.
However, on the negative side, it could also mean that house prices start to rise, potentially making it more difficult for first time buyers to get their foot on a decent rung of the housing market. This could put even more pressure on the need for an increased supply of new houses, so the party that delivers the best policies on this could also win over a number of undecided voters.
Business tax
There’s not a huge amount of change here, but again it’s got a good chance of being looked on pretty favourably by the voting public. With questions about the amount that foreign businesses pay in tax for their operations in the UK, George Osbourne has announced the introduction of a 25% tax on foreign business profits generated in the UK that are subsequently moved overseas. This will undoubtedly increase tax revenue in the short term, with Osbourne planning a £1bn increase as a result, but some commentators are worried that the change could just cut the amount of foreign business investment in the UK.
Income tax
Osbourne also announced an increase in the threshold for the lower rate of income tax to £10,600, which is the amount people will be able to earn without paying a penny of income tax on it. Set to be introduced in April 2015, it may only add £100 to the threshold, but every little helps. It’s a similar story for the 40% threshold, which will be going up to £42,385, which again represents an increase of £100 when it’s introduced in April 2015.
If we’re honest, we think that George Osbourne has missed a trick with the changes to income tax. Introducing them in April doesn’t really give people any time to feel the benefit of them before the general election. If the Conservatives had introduced them with immediate effect it might have gone on to be a strategic master stroke to win over the voting public, but as it it is we don’t think it’s got much chance of swaying the outcome of the election in their favour.
Savings
ISA limits have also been nudged upwards to £15,240 from their current point of £15,000, set to come into effect in April 2015, giving people a little more wriggle room in terms of tax free savings. However, with interest rates as low as they are the overall benefit of the change to the amount we can save annually will mostly be about tucking savings away rather than making money from them, so we’re doubtful that this will be a vote-swinging change.
Inheritance of ISAs also got a minor shake-up in the 2014 autumn statement as the tax for spouses on the inheritance of them will be eradicated. It’s probably not going to sway too many voters either though.
Air travel
In a rather odd move, air passenger duty for under-12s is set to be scrapped in May 2015, meaning that parents that take their kids on holiday or travels will pay no duty for their little terrors. If that’s not enough, the duty will further be abolished for unders-16s in 2016.
It’s a difficult one to understand though, as it’s not really the kind of thing that the everyday voter on the streets will have complained about in the past, so it just looks a bit like a cut for the sake of throwing something sweet into the mix for the Conservatives’ core middle class voters. It will undoubtedly encourage yet more air travel, which further increases the impact on the environment, so we’re just not convinced of the benefit of the change.
Budget deficit
Without going into too much detail about the figures, the long and short of it is that the budget deficit is larger than George Osbourne had planned it to be and that we’ve borrowed more than we planned to over the last year. While he has a plan that projects a steady progress to a budget surplus in 2019/20, it still gives Labour and the other opposition parties a big chink in the Conservative armour to hammer on in the run up to the election.
Some will see this as the Conservatives not living up to their promises, and that’s definitely what the opposition will be saying, but George Osbourne have challenged back with their argument that they’re more interested in doing what’s right for the UK, instead of sticking to rigid budget plans. While there’s some merit in this and Labour themselves have called for more moderate budget deficit easing, the reality is that it’ll still be a grudge point in the 2015 UK General Election TV debates.
Public spending
While public spending doesn’t really change all that much in the Autumn Statement, what does happen is that there are forecasts and indications for the years to come, and what’s clear is that no matter which party takes the parliament in the next general election, they’ll have to implement some significant public spending cuts if they’re to bring down the budget deficit. As this is a similar story across the board, it’s probably not going to one that any party can feasibly hang their hat on.
That said, Georgie O also announced plans to increase spending to the NHS by an additional £2bn every year until 2020, which is obviously going to be a crowd pleaser on the face of things, but leads to questions on further scrutiny. The biggest of these is what does this mean to other public services like policing, infrastructure, foreign aid and defense. We already knew that these areas of the public purse would be getting their strings tightened, but with yet more going to the NHS there will be a lot of attention on the balance of it all and if the public get the impression that it’s not being managed well then they’ll vote for change.
Economy
The good news for David Cameron, George Osbourne and the rest of the Conservative Party is that they’re currently in a good position with the economy as a whole. With growth revised up to 3% you can’t really argue with the figures and it’s definitely going to be a big talking point in the run up to the election.
