Never has an Autumn Statement prompted such debate about preserves.
Jam (just about managing) has been the golden acronym in the build-up to Phillip Hammond’s first Autumn Statement at the despatch box, and the first since the UK voted to leave the EU.
The Government has been vocal in its soundbite wishes to help the estimated 10 million Brits in work but on low incomes and relying on benefits. But against the prospect of impending welfare changes, inflation increases and frozen benefits until 2020, millions are not only worse off than they were just six months ago, but seem set to be squeezed further in real terms despite the Chancellor's latest plans.
In fact, most of us will be affected in some way by the brief (barely half the size of typical Budget announcements) contents of the battered red box. Here’s how:
Renters, landlords and homebuyers
Leaked in advance, the announcement that lettings agencies will be banned from charging renters certain fees was no doubt welcome news for those who face an average of £340 (with some paying up to £700) in admin fees on top of increasing rents and deposits every time they move home, according to Citizens Advice.
Until now lettings agents had been able to charge both tenants and landlords administrative fees. The fear now is that these costs will be passed onto landlords who have already had to bear the brunt of recent stamp duty and tax relief changes that seem bent on pushing landlords from the property market.
But not everyone agrees that landlords have been suddenly rendered helpless.
"The problem with fees charged by letting agents to tenants is that landlords have a choice as to which agent they use, whereas tenants generally don’t,” notes Jeremy Leaf, former chairman of the Royal Institution of Chartered Surveyors' residential arm.
“Landlords can go to another agent so the agents will have to absorb the cost and get it from somewhere else. This is why Foxtons' share price plummeted because agents like them who add a lot to the tenant’s cost of renting, will suffer. The trouble is there are a few rogue agents who have been overcharging and all agents will lose out financially as a result.”
Meanwhile, 40,000 more affordable new homes won’t do much to stem the supply and demand tide that sees property prices continue to race away from most would-be buyers. In fact, we’d need a quarter of a million new properties a year to solve the problem, and that would have to be coupled with a significant shift towards building real homes rather than the luxury flats that offer the bigger margin for housebuilders.
That’s why the infrastructure fund announced this week has been cautiously welcomed, though many remain sceptical as to the potential for the fund to affect individuals’ chances of ownership.
The Chancellor has adopted a three-pronged approach to making incomes go a little further, though the fear is that rising inflation will quickly sweep them aside.
The proposed rises in the income tax personal allowance to £12,500 have been locked in, and Mr Hammond has attempted to soften the blow of planned cuts to Universal Credit for working families by reducing the rate at which they are withdrawn. The Chancellor expects around 3 million households will benefit from this change.
Then there’s the headline act – the increase in the Living Wage to £7.50, which will says Guy Stallard, director at KPMG, “see a significant number of workers aged 25 and above get a pay rise of 30p an hour to £7.50 from next April. This may seem like small change to some, but for many people it’ll make a huge difference.
“With the cost of living higher than it’s ever been, the reality for many is that they are forced to live hand to mouth. The increase in the National Living Wage will go a long way to save swathes of people being caught between the desire to contribute to society and the inability to afford to do so.
“However, it is important that we tackle the issue of low wages for the younger generation too. Low pay blights the prospects of the young and more than two thirds (72 per cent) of 18-21-year-olds earn less than the voluntary Living Wage (paid at £8.25 nationally and £9.40 within London).”
It isn’t a great week for motorists. Paid as a percentage of car insurance premiums, the Insurance Premium Tax (IPT) hike will disproportionately affect those drivers already paying higher premiums – particularly older drivers with medical conditions and new drivers.
Gocompare.com calculates that the new 12 per cent rate could mean new, young drivers paying more than £250 a year in tax alone.
“IPT seems to be a well of easy money for the Government to draw from,” says car insurance commentator for Gocompare.com, Matt Oliver. “Just a month since people started paying the increased level of IPT announced in this year’s Budget, they are being hit in the wallet once again by the Chancellor. The last hike meant IPT had already risen 66 per cent over the past year and after the June 2017 increase it will have doubled in just over 18 months.”
In such a low-interest environment, a new three-year savings bond paying 2.2 per cent will be market-leading but won’t solve savers' problems overnight.
Susan Hannums, director of independent savings adviser Savingschampion.co.uk, says: “the indicative rate of 2.2 per cent is not enough to get long-suffering savers overly excited, especially when the maximum investment is £3,000. Over three years that would give a total return of just over £202 – not something to be sniffed at, but for many savers, not necessarily worth the time on the paperwork either.
"And when you take into account that inflation is expected to rise to 2.7 per cent by this time next year savers risk earning even less in real terms."
A high interest paying current account remains the best option for savers keen to keep hold of cash. Nationwide is currently offering 4.89 per cent gross/5 per cent AER on £2,500 in the first year of opening an account, for example.
“Let’s face it, if you are going to spend time filling in the paperwork to open these accounts, you should get the best rate of return you can first and work down,” Ms Hannums adds. “It will be interesting to see exactly what the rate is when it is launched. If we see any hint of interest rates rising in the short term, it might become more appealing that it seems right now.”
There’s no doubt a ban on pensions cold calling is the right move. Pensioners have been scammed out of billions of pounds following recent changes to regulation that brought about significant confusion and the con-artists that fed off that.
Elsewhere, Mr Hammond’s plans are more worrying. The Money Purchase Annual Allowance, which will be cut to £4,000 from the current £10,000 applies when someone takes more than the standard tax-free cash from their pension scheme.
“This means anyone contemplating drawing on their retirement savings needs to be very clear about their future retirement saving plans,” says Tom McPhail, head of retirement policy for Hargreaves Lansdown. “Taking even £1 in excess of your tax free lump sum, or using the uncrystallised funds pension lump sum rules in your 50s for example could leave savers with only very limited scope to make further pension saving in the future. In particular, it could deny them the benefit of future employer contributions.
“It is vital therefore that savers plan the drawing down of any pension savings with great care, checking what the future saving implications will be before tapping into their savings. The restriction is also likely to be retrospective, so anyone already caught by the MPAA may have to adjust their pension saving plans in the future.”
At first glance this didn’t seem like a mini-Budget for investors, but behind the various fund injections are industries and sectors that are set to gain from Mr Hammond’s announcement. But maybe not in the ways we might immediately expect.
“We’re probably not looking at a 1930s-style building boom, but there were significant sums committed in the Autumn Statement to support the construction of new homes and improve infrastructure,” suggests Tom Stevenson, investment director for personal investing at Fidelity International. “Housebuilders could gain, although the reaction from shares in the sector has been mixed, if not slightly negative.
“Things look better for companies supporting and exploiting construction in various ways – tool-makers, engineers, repair providers. Infrastructure investment companies could win if they can access the projects receiving a state boost while commitments to expanding internet coverage should help companies providing internet connections and network maintenance.
“Losers included estate agencies, who were told the admin fees they charge tenants are about to be regulated, while insurers suffered an increase in Insurance Premium Tax that makes their products more expensive. Employers of large, low-paid workforces will have to pay staff more than planned following the rise in the National Living Wage.”
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