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04 December 2014

Autumn Statement – Key Implications

George Osborne has now published the 2014 Autumn Statement providing an update of the economy before the 2015 General Election. Following the statement’s publication and Community Housing Cymru’s response, a few key implications of the statement are detailed below.

The greatest change to come from the statement is the total reform of the Stamp Duty Land Tax which has moved from its previous ‘slab’-like taxation to that of a progressive tax, similar to income tax – this change came into force at midnight following the statement’s publication. Some 98% of homebuyers are said to benefit and the Wales Office have said that if this system of tax were in place in 2013/14, 99% of homebuyers in Wales would have either paid less tax or have paid the same level of tax. The average house-buyer in Cardiff could see their stamp duty cut by nearly £1000. A possible downside to this reform could be, as some economists predict, a rise in house prices as those selling could now afford to raise their house prices.

New Stamp Duty Land Tax boundaries
Property value Tax value
Up to £125,000 0%
Up to £250,000 2%
Up to £925,000 5%
Up to £1.5m 10%
Over £1.5m 12%

On the broader subject of housing, the statement has come under fire for not prioritising the issues of housing more, particularly during what is deemed a ‘housing crisis’. While reforms to the Stamp Duty Land Tax have been broadly welcomed, there are concerns that reforms will inflate demand and create a housing-boom pre-election with little to help the lack of supply. Before the publication of the Autumn Statement, the Chief Secretary to the Treasury unveiled the latest National Infrastructure Plan which included a commitment to extend the Affordable Housing Programme for a further two years with a spend of £957m through 2018/19 and 2019/20. This too, however, has come under fire as the ‘affordability’ of the programme can be up to as much as 80% of market rents making it beyond affordable for some.

On welfare the UK Government is continuing its commitment to cut the welfare budget through sticking to its welfare cap - £119.7bn for 2015/16 – and by continuing its freeze of Universal Credit work allowance for an additional year through to 2017/18. The Office for Budget Responsibility (OBR) has said that the Government is on target to stay within its cap. Households are set to struggle according to the OBR who forecast a steady rise in the ratio of household debt to a peak of 184% of incomes, eclipsing the previous peak ratio of 169% in 2008. The current ratio is 146%, the lowest since 2004. The Joseph Rowntree Foundation has also predicted that 1 in 4 families will be in poverty by 2020 criticising the failure to tackle the causes of poverty and the expensive rise in the personal allowance as opposed to a more beneficial rise in working allowance. Personal tax allowance is to rise to £10,600 in 2015/16 which will take 20,000 people in Wales out of paying income tax while a further 1.1m people will be £94 better off, according to the Wales Office. Migrants are also subject to changes made in the Autumn Statement as those from European Economic Area (EEA) countries will lose their right to reside in the UK as a jobseeker if they have no ‘genuine prospect of work’.

Due to additional spending announced in the statement, Wales will receive a consequential worth more than £123m which equates to 0.8% of the Welsh Government’s budget. £71m of this is the direct result of extra spending on the English NHS and the Welsh Government have committed to spending this figure in the Welsh NHS. CHC has reiterated its support of the Supporting People programme and would like to see investment in this area. The remainder of the £123m is the result of the devolution of business rates to Wales which will enable the Welsh Government to help businesses in Wales – in England the rates will be reviewed to help high streets compete with online firms. The OBR has also, for the first time, published a forecast for tax revenues in the devolved nations which shows that Wales could control nearly £3bn in tax revenues, most of which would come from Welsh Government control of 10p in the pound in income tax, stamp duty would raise £246m and landfill tax would raise £53m – the latter of the two are set to be devolved in 2018 while income tax powers are subject to a referendum in Wales following the passing of the Wales Bill. The figure of £3bn would only account for less than one-fifth of the Welsh Government’s overall budget.

As pressures on budgets and housing supply continue the Autumn Statement doesn’t offer much in the way of relief, however, CHC are keen to ensure that the additional money for Wales is targeted at preventive and cross-cutting services such as supporting people.