The hidden message in the Autumn Statement
The Autumn Statement from Philip Hammond set out the Treasury’s plans to prepare the UK economy for the challenges of Brexit. We go through the Chancellor’s key announcements to tease out the underlying message he sent to workers, savers and pensioners.
It seems like autumn is the time for JAM. That’s JAM as in ‘just about managing’ – the buzzword used by the Chancellor in his first – and only – Autumn Statement. (It’s his only one because he has decided to replace it with a Spring Statement and an Autumn Budget). Hammond said that he had two main goals: to help households who are in that JAM position, and to prepare the UK as a whole for the economic hit of Brexit.
Hammond has been forced to ditch George Osborne’s goals of a Budget surplus, so we knew not to expect the kind of flashy measures that Osborne had become known for. But amid the more sombre mood of this Autumn Statement there were some significant measures that may have promising long-term benefits.
What were the good things?
The biggest benefit will be sure to come from the £1.4 billion earmarked for 40,000 new affordable homes, plus the £2.3 billion housing infrastructure fund to provide 100,000 new homes in high-demand areas. Though this won’t solve the housing crisis, it’s a much-needed step in the right direction. First-time buyers have been increasingly priced out of the market, and with the cost of renting also going up there is a real danger that for many people a home of any kind will soon become unaffordable. The benefits of Hammond’s investment won’t be felt for some years, but there is at last a glimmer of light ahead for frustrated would-be homeowners.
Help for renters
Hammond also recognised that even renting a home can be hard to afford (ironically, it’s often more expensive than repaying a mortgage). The Chancellor announced that he would ban upfront letting agent fees, which should make renting more affordable and in turn help people to save for a deposit on their own home.
Income tax and Living Wage
The income tax threshold will rise from £11,000 to £11,500 in April 2017, giving most of us an extra £500 to spend. The higher-rate income tax threshold is also to rise to £50,000 by the end of the Parliament. This is actually mixed news if you are near the threshold, as being just inside the higher-rate band is great for saving into a pension (because you get double the tax relief). Consequently you may soon need to increase your contributions if you are near the boundary.
JAM households were also the focus of a change to Universal Credit, which reduces the loss of benefits after returning to work. Around 3 million households are expected to benefit from this. The Living Wage (the new name for the minimum wage) will also rise to £7.50 an hour.
New savings bonds
Hammond also announced a new three-year savings bond to become available soon after April 2017. It would offer a ‘market leading’ interest rate in the region of 2.2 per cent, and anyone over 16 will be eligible to invest up to £3,000.
The returns aren’t spectacular – even investing the full amount would only give you £202 in earned interest over the three years. However, given that the current best three-year bond pays only 1.62 per cent, this investment may be worthwhile for anyone with a spare £3,000 sitting around.
For more about savings and investments, see these web pages.
The Chancellor pledged to keep the ‘triple-lock’ on the State Pension, by which rises in the State Pension are (currently) ahead of both inflation and interest rates – giving pensioners a far better return than most savers. (Read more about that in this article.)
Growing businesses will benefit from a £400 million injection into venture capital funds through the British Business Bank, which will unlock around £1 billion in finance to fuel growth.
What was not so good?
Other tax changes announced were less positive. Salary sacrifice schemes (which enable employers to give their workers benefits tax-efficiently) are being scrapped, with the exception of pensions, childcare and some eco-friendly travel schemes.
Another small hit to the pocket will come from a rise in insurance premium tax, from 10 per cent to 12 per cent, which will take effect in June.
So what was the hidden message?
With its focus on housing, infrastructure, growing businesses and savings, two words sum up Hammond’s Autumn Statement: ‘long term’. This was not an occasion for pulling rabbits out of hats, but for battening down the hatches in preparation for a possible rough ride ahead. If anything, Hammond’s debut performance as Chancellor had more in common with (early) Gordon Brown, with the emphasis on prudence.
So the underlying message in the Autumn Statement was: Plan ahead. The UK economy is at a pivotal moment, with many uncertainties and challenges to come. The country needs to prepare for these – and it follows that individual households should too. So this is the time for some serious forward planning. These announcements should prompt us all to take a long, hard look at our own financial situation, and see how we can future-proof our plans while taking advantage of the opportunities that may emerge.
A free financial health check from an independent adviser is a great starting point. You can book your free check-up here. Alternatively, search for an adviser by postcode or be matched to one automatically through our smart search form.