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Two weeks to Budget: MPs launch household finances inquiry

The Conservative Government’s autumn Budget is only a fortnight away – and pressure on the Chancellor of the Exchequer is mounting as a group of MPs launch an inquiry into the financial burdens faced by households. The Treasury Select Committee (TSC) yesterday announced plans to investigate whether households are buckling under financial pressures – with the first evidence to be heard on 14 November, a week before the Autumn Statement is scheduled. With two weeks until the Autumn Statement, Which? looks at current proposals on the table.

Inquiry into household finances

The inquiry by the TSC will look into the pressures faced by households, with a specific focus on lifetime financial planning, problematic indebtedness and the market’s ability to support low-income households.

TSC chairwoman Nicky Morgan pointed to the UK’s decreased household saving rate, high inflation and low wage growth as key concerns: ‘We will examine what policies could support households in achieving appropriate levels of saving, and the sustainability of the UK’s household debt and consumer credit.’ The inquiry comes as inflation hit 3% in September, the highest level in more than five years. Meanwhile, the number of people on strict debt repayment plans has reached an all-time high of 15,523 in the third quarter, an 18% increase over the previous period.

Initial evidence will be heard on 14 November – timing which is likely to put additional pressure on Chancellor of the Exchequer Philip Hammond to deliver a budget that eases the burden on households. Tax relief on pension contributions may change It has been speculated that Hammond may implement radical reforms to tax relief on pension contributions, according to The Independent[1].

Under the current system, income earners are able to claim tax relief on their pension contributions at their highest income tax rate. The proposal would see all income earners claim a 30% tax relief on pension contributions – representing a 10% increase for basic rate payers, but a significant decrease for higher-rate payers who can currently claim 40% or 45%. Tory former minister David Willetts told BBC Radio 4’s Today programme: ‘If you are 30 now you are probably earning less than someone who was aged 30 10 years ago.

Anything that rebalances and helps young people, I’d be in favour of.’

Stamp duty cuts for first-time buyers

First-time buyers may also be in the Chancellor’s sights. In an attempt to woo the younger generation, it is rumoured that Hammond may scrap stamp duty for first-time buyers. The Evening Standard[2] reported the plans are part of a wider agenda to help people in their twenties and thirties secure their first home.

Stamp duty is charged on all homes over ?125,000, making London one of the hardest areas in the country to get onto the property ladder. It is charged at 2% on property valued between ?125,000 and ?250,000, 5% above ?250,001, 10% above ?925,001 and 12% after ?1.5 million. According to the Land Registry, the average price of property for first-time buyers in London is ?428,546, which would require buyers to pay over ?11,427 in tax.

Housing development may ramp up

Tory MPs have indicated that the government needs to ramp up investment into its house building programme.

According to The Guardian[3], Communities Secretary Sajid Javid has called for the government to borrow more money to invest in new homes. Javid stressed the need to invest in housing stock: ‘We have a housing crisis in this country, I’ve been very open about that, the government has been very clear about that, and there’s a lot that needs to happen.’ In an appearance on BBC1’s Andrew Marr Show, the Communities Secretary reinforced his argument: ‘We are looking at new investments, and there will be announcements – I’m sure the budget will be covering housing.’

Whether the budget makes room to accommodate Javid’s aspirations of building to 300,000 homes a year remains to be seen.

Student loan repayments threshold

Hammond has signalled that tackling ‘intergenerational unfairness’ is likely to be a top priority as the Conservatives seek to target younger voters. One key proposal is reforming student loan infrastructure. At the Conservative party conference, Prime Minister Theresa May asserted that the threshold for student loan repayments should be increased from ?21,000 to ?25,000.

The proposed reform is set to save the government ?2-?3 billion and may result in a portion of students not paying off their fees in full.

This concept, however has received support from the part, with Brexit Secretary, David Davis championing the idea of writing off student loans.

5 things Which? wants to see

Which? is calling for the government to make a number of changes in the Autumn Statement, including:

  • Pensions dashboard: a clear timetable for the delivery of the pensions dashboard by 2019, with a commitment to require all pension schemes to provide comprehensive and consistent data
  • Consumer Protection Regulation Green Paper: to deliver improvements to the consumer protection regime and essential markets
  • Green Paper on the cost and quality of care: to ensure older people are able to access high-quality care
  • Which? involvement in Government’s Brexit business forum: to deliver a Brexit which secures the right outcomes for consumers

References

  1. ^ The Independent (www.independent.co.uk)
  2. ^ Evening Standard (www.standard.co.uk)
  3. ^ The Guardian (www.theguardian.com)

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