Autumn Statement 2014: what it means for you

No one had particularly high hopes for this Autumn Statement. There's so little time between now and the general election in May next year, that the current government wasn't thought to have enough time to pass any legislation, or change any rules. We expected an opportunity to accentuate the positives of the country's finances - which we got - and a couple of crowd-pleasers to persuade voters that the current government is worth giving another term in office.

What we got surpassed all expectations, because those crowd-pleasers were both surprising and wholly welcome.

Stamp duty

The massive rabbit to be pulled out of the hat was stamp duty - which will make a huge difference to anyone buying a home. It also comes into play from midnight tonight, so there will be emergency legislation passed to enable that to happen.

The current slab system distorts the market horribly, because it increases stamp duty on the entire value of the home when a threshold is passed. This will be replaced with a system whereby you only pay the higher rate on the portion of your home that falls into each band - in the same way that you do with income tax.

The thresholds will also change, so that 0% is payable on houses worth up to £125,000, 2% on the portion of the home worth up to £250,000, 5% up to £925,000, 10% up to £1.5 million and 12% on everything over that. Osborne said this would mean that 98% of people will pay less stamp duty under the new system.

Those who are in the middle of buying and selling (who have already exchanged contracts but not yet completed) will be able to choose whether to pay tax under the old system or the new one - so they won't lose out, and only those whose home are worth more than £937,000 will see their stamp duty go up overall. It's worth pointing out that this is a massive rise in the stamp duty on the most expensive homes, to pay for cuts for everyone else.

Old vs new: Stamp Duty calculations

Income tax

The second piece of good news was on income tax - with the tax fee personal allowance rising to £10,600 next year (instead of the promised £10,500). And for the first time this will be extended to those paying higher rate tax - so the threshold will also rise - as a first step towards the Conservative Party pledge to eventually raise the threshold to £50,000.

Pensions

Osborne confirmed the axing of the 'death tax' on passing unused pension pots to your loved ones after you die. He also said that people who die before the age of 75 who have joint life or guaranteed annuities will be able to pass them onto their loved ones.

ISAs

Osborne confirmed that the ISA limit will rise next year to £15,240. More surprisingly, he announced a change to passing those savings on after your death. At the moment when someone dies, their ISAS lose their tax-free status, in future they will be able to pass them on, and the ISAS will continue to be tax free.

Tax avoidance

Another major area for crowd-pleasers was a crackdown in tax avoidance by groups that public opinion has hardened against.

The so-called Google tax was unveiled, which will tax multinationals on the profits made in the UK, which are artificially moved out of the country for tax avoidance purposes. This is a major breakthrough for all those who have campaigned for multinationals to pull their weight in the tax department.

Osborne added that banks would be further punished for their role the financial crisis, so that when they move into profit they will no longer be able to offset all of their loses against their tax on profits.

And he announced more specific crackdowns on the kinds of tax avoidance schemes used by wealthy individuals. As part of this, those people who are registered as non-doms for tax purposes will be taxed if they end up essentially living in the UK. The annual charge of £30,000 will rise to £60,000 for those who have spent 12 of the last 14 years in the UK, and £90,000 for those who have been here for 17 of the last 20 years.

The regions

There were announcements which were positioned as the government making good on its promise to give more power to the regions. This includes devolving the power to set corporation tax to the Northern Irish assembly, devolving decisions on business rates in Wales, and drafting up legislation on how responsibility for income tax rates and thresholds will be devolved to Scotland.

In an effort to convince the nation that the government isn't London-centric, Osborne also announced measures to support what it is calling a northern powerhouse in the North of England. This includes a Sovereign Wealth Fund, a call for cities to work with the government in paving the way for the establishment of city mayors, and money for infrastructure projects in the North, including roads and rail, education and science.

Fuel duties

As widely predicted, Osborne announced that fuel duty will remain frozen. He also said that the Air Passenger Tax Duty will be axed for children under 12 from next May, and the following year it will be scrapped for those under the age of 16.

Small businesses

Another of the most widely-leaked changes was confirmed, with business rates relief doubled for another year, inflation-linked increases in business rates capped at 2%, and a rates discount for high street shops pubs and cafes of £1,500 next year (an increase of 50% in the discount). There will also be a full review into how business rates work.

There will also be a range of new reliefs for various industries, including children's television and orchestras, increases in research and development relief, and a scrapping of National Insurance paid on the employment of young apprentices.

Student loans

Student loans will be extended to young people embarking on postgraduate studies. They will be able to borrow up to £10,000 a year

Charities, the military and the NHS

Working on the basis that all voters support spending on these three areas he highlighted major health investments: the NHS will be guaranteed an extra £2 billion every year - to be spent on the frontline, and the £1.2 billion in fines that the banks had to pay after the foreign exchange scandal will be ploughed into improving GP services. Carers will also get a boost, by being eligible for the £2,000 employment allowance for the first time. And those who die in the pursuit of addressing an international health crisis will not have inheritance tax charged on their estate.

Meanwhile, a number of individual tax reliefs and spending commitments were made to specific charities - including former service personnel with hearing problems, air ambulance services and congregations raising money for church restoration.

The bad news - spending cuts

Of course the good news doesn't come free, and Osborne made it clear that all these measures would cost the government less rather than more. So huge spending cuts came as part of the package. Osborne committed the government not to "squander the economic gains' but to continue to make cuts and "tighten the nation's finances a little," so there will be big cuts in spending. Government departments will feel the pain to the tune of £13.6 billion, and further cuts on this scale will be expected for the following two years.

Total welfare spending is forecast to be £1 billion a year lower than he laid out in the Budget because Universal Credit work allowances will be frozen for another year, tax credits will be cut when over-payments are certain, and there will be no unemployment benefit for migrants with no realistic hopes of finding work.

The economy

All this he set in the context of a country putting the worst of the past behind us. This year he says GDP will grow faster than previously forecast, and hit 3%. This will weaken a little next year to 2.4% and the year after to 2.2%.

He said unemployment is also falling, and that over the life of the parliament, 1,000 new jobs had been created every day (85% of which were full-time positions). And while he accepted that real wages had been falling, he said that the OBR predicts for wages to rise faster than inflation every year for the next five years.

As for the deficit, government borrowing is forecast to be £91.3 billion this year, then £75.9 billion next year. The forecast is that the deficit will be worse than predicted over the next two years. However, it expects that to improve faster than previously predicted, so that the government will move into surplus in 2018-19.

The future looks less rosy, however, and Osborne said the 'warning lights' on the global economy were flashing. This he used to emphasise the importance of prudent financial policies - which he naturally hopes will encourage everyone to vote him in for more of the same in May.


Tax and pensions on AOL Money

A million more will pay higher-rate tax

Pensions jargon buster

Autumn Statement 2014: what we want


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