Chancellors Autumn Budget Statement
The Autumn Statement is due today at around 12:00 after Prime Minister’s questions and you can follow our live Twitter feed @ChattertonsLaw from 11.00 onwards.
The main thrust of Mr. Osbourne’s rhetoric has been shared with the masses and we already know roughly what to expect.
Roads and infrastructure
More money is to be spent on developing the North of England and the road and on the rail network to improve links from East to West.
Unsurprisingly, in the avalanche of love we seem to now have for the Scots, this will include a set of improvements to the A1. Also, and bizarrely, this will involve digging a tunnel under Stonehenge – let’s just hope he doesn’t unearth the gateway to fiscal hell in the process of spending £15bn on new road schemes.
This speech will be one of a positive, yet political tone for the entire country as the anti-Tory rhetoric of the previous 4 years has been one of ‘they only care about rich Londoners’.
The tidal defences are largely as a result of the floods last year, with the Boston Flood Barrier getting a decent chunk of the £2.3bn he is expected to commit.
This is all on top of the extra £2bn he promised to fix the NHS - as well as using the £1.1bn raised in fining the banks to spend on the NHS too.
It’s likely that he will re-iterate the Conservative promises of raising the amount you can earn before paying income tax to £12,500 by 2020 if elected in May.
They also plan to raise the 40% higher rate tax threshold to £50,000, making our job easier when calculating tax liabilities and allowing the ‘squeezed middle’ a little more money to spend. This is a bit strange as they’ve just taken child benefit off those earning over £50K - raising the threshold gives those earning £60K or more an extra £2K in their back pocket, which more than compensates for losing the £1,000 - £1,500 from the child benefit withdrawal.
I suppose that the Chancellor is trying to make the tax and benefits system more straightforward and we might see child benefit withdrawn altogether at some point in the next few years as part of this universal credit overhaul.
A new garden city to be built. Essentially, £100M is going to be put up for this project, with private companies and investors expected to take over in the later stages. The £100m is, reportedly, going to be part loans to companies to get the town going and is a bit of a Tory Kick-Starter.
Overspend and economy
The overspend is for a variety of reasons - the housing market is slowing down, oil price has collapsed and a variety of other external factors. One big factor is banks paying fewer bonuses so the tax receipts from those are much less.
An interesting concept that should hopefully be discussed is whether we are at capacity yet - this is measured by the ‘output gap’. The OBR forecast an output gap of 1.4% for 2014. If we’ve hit that then, in order for the country to grow, this must push up inflation. The output gap is, essentially, the difference between actual GDP and potential GDP.
This output gap is normally tied up with unemployment and with record numbers of people in work, the gap should increase.
In order for the country to grow beyond its current position now is to enter a growth phase, where wages increase and therefore expenditure increases. What we have seen is the Chancellor get it slightly wrong and raise the personal allowance too quickly, which is why he’s promising rises, but much less than previously. Over the last 5 years the personal allowance has increased to £10,000 from £6,475, an increase of 54%. Throughout the next stage he is promising a growth of 25% of the personal allowance, which should be more sustainable.
A growth stage in our economy is normally punctuated by mergers and acquisitions in big companies and the Aviva – Friends Life merger indicates that the recovery is over and we are looking at a period of growth.
Stay tuned into Twitter @ChattertonsLaw today from 11:00 and we’ll give you a full breakdown by Friday Morning, our interpretation of the key points and what the Budget means for you.
If you would like any more information from our Independent Financial Advisor, Daniel Elkington please call 01205 351114.