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December 7, 2012 / politicsbitesize

Autumn Statement 2012

OsborneOn Wednesday 5th December, the Chancellor, George Osborne, gave his Autumn Statement to parliament, which is one of two Statements that are made by HM Treasury to the government upon publication of the economic forecast for the .  As noted in last week’s blog post, the forecast for the UK economy is looking bleak thanks to higher than expected borrowing by the government and low spending by consumers.

In his speech to parliament George Osborne told MPs that Britain is facing a longer-than-expected battle to reduce its debts, but that we are on the ‘right track’ and ‘making progress’ with deficit reduction. The Chancellor delivered a very positive outlook for the UK economy despite the jeers from the opposition and went as far as to say that ‘turning back [on deficit reduction] would be a disaster’.

So, what did the Chancellor outline in his Autumn Statement?  Well, he gave details of plans to squeeze spending in most Whitehall departments in order to use the money saved to build new schools and transport schemes.  Around £1bn will come from belt tightening in all but four Whitehall departments and will be spent on 100 new free schools and academies.  This will be seen as a controversial move in light of the fact that there was a profligate overspend of £1bn by the Education Department on Michael Gove’s pet academies project.

However, the Chancellor stated that savings from Whitehall would not be enough if the treasury coffers were to be refilled.  What is required is a clampdown on tax evasion and avoidance, and to this end HMRC will be given an extra £77m to enable them to employ more tax inspectors.  He went on to tell MPs that tax avoidance loopholes will be closed with immediate effect and around £5bn will be reclaimed over the next six years from undisclosed Swiss bank accounts held by UK residents.

George Osborne continued with his onslaught on tax by reducing the amount of money that people can pay into pension funds before paying tax on those contributions from £50,000 to £40,000.  This means that higher earners who continue to pay in £50,000 a year to a pension fund will be paying more tax on their pension savings.  But, according to Robert Peston for the BBC, this restriction on pension savings will take five years to reach the expected yield of £600m.

There will be no freeze in benefits and in fact they will be uprated by 1%, which means people will have more money but at less than the rate of inflation.  This ensures a reduction in the cost of welfare payments, but there is still going be a slash to the benefits bill of £10bn.

The Chancellor delivered good news on the possible rise in fuel duty. Instead of announcing a proposed freeze as expected, he has cancelled it altogether!  There will be no rise in fuel duty at all, which means that there hasn’t been a petrol tax rise in the two and a half years since the Coalition Government came to power.

Thanks to a Liberal Democrat revolt there was no mention in the Statement of David Cameron’s plans to remove housing benefit for the under 25s.  The idea was presented back in June 2011 but, according to government sources, the Lib Dem leader Nick Clegg and the Treasury chief secretary, Danny Alexander, shot it down.  Unfortunately for the Lib Dems, however, there was no mention of a tax on the wealthy and Ed Balls, the Shadow Chancellor, highlighted this omission in his reply to the Autumn Statement.

As always, there will be those who gain from the Chancellor’s changes and those who will lose.  In brief the losers are: wealthy pension savers who can no longer squirrel away large sums without paying tax; most benefits claimants whose 1% rise will not meet the increase of everyday household items; those who utilise tax avoidance, who will find loopholes begin to be closed down; and the environment, as the Chancellor decided to invest in gas fired energy rather than wind power.  The winners are: the motorist, who will not have to face a rise in fuel duty in this parliament; poorer pensioners, for whom a 2.5% rise in their basic state pension will mean more money to spend; all new academies and free schools, who will have access to £1bn in order to expand and to incorporate the tens of thousands of new child places urgently needed; higher rate tax payers, who will see the threshold of earning potential rise by 1% in 2014, thus allowing them to earn £41,865 before having to pay 45%; and the lower rate tax payers, who will see an increase in their personal tax allowance to £9,440 in April 2013.

 

 

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