Autumn Statement 2012
Today George Osborne, the Chancellor of the Exchequer, stood up in the House of Commons and delivered his autumn statement -- effectively a mini-budget. I watched most of the speech and have now caught up on the coverage from various news outlets. If you want to read the speech in full, it can be downloaded from the HM Treasury website, and my analysis of some of the major announcements can be found below.
Personal allowance
This continues its gradual rise toward £10,000, which was a key commitment of the Liberal Democrats in their 2010 manifesto. This benefits the majority of taxpayers, and this time higher rate taxpayers will also be better off, as the higher rate threshold is only increasing by 1%. However, anyone who is already earning less than the allowance will not benefit, so it may not help those struggling to get by on a part-time job paying the minimum wage.
Employee shareholder status
An utterly barmy policy whereby employees can give up some of their important employment rights in exchange for £2,000-50,000 worth of shares in their employer, which will be exempt from capital gains tax. Roundly criticised when it was first announced, I expect this to be quietly shelved in a couple of years due to a complete absence of demand.
Pensions tax relief
Two restrictions on pensions tax relief were changed, the first being the lifetime allowance, which was cut from £1.5m to £1.25m and is unlikely to affect most people (if it does affect you, I'm afraid I have no sympathy whatsoever). The second was a reduction in the annual allowance, down from £50,000 to £40,000. Whilst this might still seem a large amount, some members of final salary schemes may find they hit the limit and have to pay a tax charge on the excess.[note Understanding the annual allowance for pension schemes] However, there is an argument that if you are a member of a generous final salary scheme, you should bear some of the burden for repairing the nation's finances.
Individual Savings Accounts (ISAs)
Two pieces of good news here. First of all, the annual allowance is being increased, allowing you to keep a bit more cash or shares out of the tax net. Secondly, the government is considering allowing shares listed on the Alternative Investment Market (AIM) to be held in ISAs, which is something shareholder groups have wanted for a long time.
Benefits uprating
Most benefits and tax credits will rise by 1%, instead of the rate of inflation. Since inflation (however you measure it) is almost always higher than this -- and indeed the official target is 2% -- this means a real terms cut. Any disability elements of benefits will however increase in line with inflation. Pensioners get a 2.5% increase in the basic state pension thanks to the 'triple lock',[note This ensures that the basic state pension increases each year by the highest of: increase in annual earnings, inflation or 2.5%] another key Liberal Democrat policy.
Fuel duty
The planned increase of 3.02p per litre on fuel duty has been cancelled, to the delight of the road lobby and the dismay of environmental groups. Despite being ecologically-minded, I think this was a sensible decision, given how essential a car is for many workers to commute. Of course, if we had proper public transport outside of London then an increase would be less of an issue, but that's a rant for another day.
Tax avoidance
A huge range of measures to combat tax avoidance were announced, though it remains to be seen whether these will be successful or just skirted around by the firms of lawyers and accountants who specialise in this area. Personally, I'd bet on the accountants over HMRC.
Overall, for something billed as a 'statement', the Chancellor managed to cram in a lot of changes. I suspect the least affected will be middle earners who don't claim any benefits or tax credits, as they will have a slightly higher net income due to the personal allowance increase, without suffering too much in other areas. Hardest hit will be those who rely on benefits or tax credits to meet their everyday expenditure, due to the uprating being lower than inflation. Millionaires might see the anti-avoidance measures as an attack on their income and wealth, but previous attempts suggest they don't have much to fear. We're still not 'all in this together'.