In a week’s time the new Chancellor Philip Hammond will stand up for his first major Parliamentary set piece.
The Autumn Statement on 23 November will set out to Parliament his approach to the economy and how the Treasury will deal with the consequences of leaving the EU.
A lot of what he announces will affect Saga readers. Here is my take on what he should – and probably will – do.
The Government has a manifesto commitment to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of this parliament which is scheduled for Spring 2020.
It is highly unlikely the Chancellor will renege on those promises even though it will be expensive – costing an estimated £8bn by 2020. The theory is that the more money people keep from their wages and pensions the more they spend and that helps boost the economy.
Prediction: The already announced personal allowance of £11,500 from April 2017 and the higher rate threshold of £45,000 will stay, despite the £2.5bn a year cost. And he just may move more quickly towards the 2020 targets.
Tax on savings
The rules for taxing interest on savings are ridiculously complex and almost impossible to understand. The first £1000 of interest is tax-free but that is cut to £500 for higher rate taxpayers. There is also a band of £5000 above the personal allowance where the tax can be 0% if other income is below the personal allowance.
Scrapping all these rules and making all interest on savings tax-free would help many Saga readers and go some way to offset the very low interest rates that are currently paid.
Prediction: The Chancellor will make some changes to tax on interest to try to simplify it. But he will stop short of ending all tax on interest for those who are better off.
How to claim tax free savings interest
Philip Hammond is under great pressure to freeze or even cut the 69.5p we pay in duty (including VAT) on every litre of petrol and diesel we buy.
As fuel prices rise the costs for drivers in rural areas who have to use their cars grows. Fuel also feeds into inflation – everything we buy is delivered by a lorry or van at some point in its life. So the higher the cost of fuel the higher inflation will be.
The Chancellor could also enter the diesel vs petrol pollution debate by having different duty on each fuel.
Prediction: A freeze on duty for at least another year – possibly longer. No differential duty for petrol or diesel. Higher taxes on company cars and maybe a revamp of Vehicle Excise Duty.
How to control your petrol costs
The guarantee that the basic and new state pensions will rise with prices, earnings, or 2.5% –whichever is the highest – is very expensive.
Over the years it has helped reduce pensioner poverty and on some measures older households are now as well off as younger ones.
The Government is committed to keeping it until 2020. But it is highly unlikely to stay beyond that as MPs, the Government Actuary, and many experts say it will become unaffordable.
Prediction: A consultation on what might replace the triple lock after 2020.
Is the triple-lock pension protection at risk?
An easy way for a Chancellor to raise money is to raise VAT. Philip Hammond has already said he wants to spend money on infrastructure and that he is not going to meet the target of balancing the annual books by 2020.
The UK rate of 20% is already one of the lowest in the EU; some countries charge 25%. Raising VAT would put up prices in the shops and slow down the economy, but if it is going to be done then the further from the 2020 election the better.
On the other hand a cut in VAT would boost the economy, so a short-term time-limited cut is possible.
Prediction: Finely balanced but I do not expect a rise in VAT or a short-term cut. Instead he may fiddle at the edges, bringing things into VAT that are currently exempt or zero rated (remember the pasty tax??) and announce a tougher clamp down on evasion which costs nearly £13 billion a year.
Things you do and don't have to pay VAT on
Stamp Duty Land Tax
The big change in Stamp Duty Land Tax (SDLT) in December 2014 made it fairer and cut the cost for homes sold for less than around £1 million.
Another change in April 2016 added an extra 3% SDLT on additional homes such as holiday cottages and buy to let property. That also hits parents helping children to buy and can affect those who rent out a home and buy another with a new partner.
The additional SDLT on second homes brought in extra tax which more than balanced the 2014 reductions. But estate agents say that the very high taxes on top end homes over £1 million – especially if they are additional properties as many are – has slowed the market in London and that has taken money out of the economy in general. Only one in 60 homes sells for more than £1m and no change there is expected.
Prediction: SDLT receipts from homes are at a record high of around £7.5 billion in the last 12 months. So it is hard to see the Chancellor cutting SDLT again so soon, although he may be tempted to change the second home charge. And he just may deal with one or two loopholes.
A simple guide to stamp duty
George Osborne ended two tax breaks for buy-to-let landlords. Since April they must keep a note of all repairs and other costs to get tax relief on those expenses. In the past a fixed 10% of their rental income was tax-free for repairs, however little they spent.
From next April the tax relief on mortgage interest will be cut and by 2020 will only be able to be claimed at basic rate tax. That change can be avoided by creating a company and letting through that.
Prediction: The Chancellor will keep the existing structure but may warn that he will close loopholes and take further action if more buy-to-let homes do not come back on the market.
What are buy-to-let mortgages?
The Government intends to clamp down on allowing phones, company cars, or computers to be bought by employees through their employer by giving up part of their salary. That can save income and national insurance on the cost. Even wine can be bought this way.
Prediction: Hammond will announce that pensions, childcare, and bikes and other equipment for cycling to work will continue to be allowed to use salary sacrifice. But everything else will be stopped. There will be some transitional protection for arrangements in place on Autumn Statement day 23 November.
Things to watch for
• Major changes in pensions tax relief are unlikely but there may be some fiddling round the edges with changes to Annual Allowance and Lifetime Allowance.
• Clarification of National Insurance rates for self-employed people when Class 2 contributions are scrapped from April 2018.
• Possible consultation on moving towards combining income tax and National Insurance, but nothing will change for at least five years.
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