With the UK economy now beginning to pick up, George Osborne’s Autumn Statement should receive plenty of attention.
It will be interesting to see whether the chancellor decides to give away some pre-election goodies or whether he’ll wait a while longer and focus on cutting the deficit.
Anyway, for what it’s worth, here are my best guesses for what we’ll hear tomorrow.
Isas are likely to be in the line of fire
I suspect that changes to the Isa regime will garner the biggest headlines.
There’s a lot of chatter that peer-to-peer loans – where savers lend direct to borrowers via a website – will become eligible for Isas. This would be another big boost to this fast-growing sector.
It’s also possible that Equity crowdfunding, which enables private individuals to invest in start-ups, may also become eligible for Isas. However, my hunch is that Osborne will leave it at peer-to-peer lending due to the high-risk nature of investing in start-ups.
Moving on, we may well see a ‘lifetime allowance’ introduced for Isa saving. You often read articles about ‘Isa millionaires’; I reckon Osborne will think that £1m is far too large for a tax shelter.
An Isa lifetime allowance could be similar to the allowance for pension pots. Currently if your pension pot is worth more than £1.5 million when you retire, you will have to pay tax on the excess over £1.5 million.
I fear that an Isa lifetime allowance could be set as low as £100,000. As soon as your Isa pot went over that level, you would have to pay tax.
Such a tax could hit many long-term Isa savers. Baker Tilly has calculated that if you had saved the full Isa allowance every year since Isas began in 1999, you would have contributed £130,000 in total.
Then on top of that, you would hopefully have generated some decent growth. All of that growth would be taxed if the lifetime Isa allowance replicates the structure of the pension lifetime allowance.
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Pensions – a raid on tax-free lump sums?
There has been far too much tinkering with the tax treatment of pensions in recent years – endless rule changes reduce confidence in the system and discourage people from saving for their retirement.
If there are any changes to pensions, the most likely target is the 25% tax-free lump sum, which can be withdrawn from pension pots once a saver reaches 55. I just hope that Osborne can resist the temptation to make a raid here.
Little change on stamp duty
Stamp duty on house purchases is a ridiculous tax. It’s an inefficient way to tax property, and the ‘slab’ structure – where you pay 3% tax on the whole cost for a £255,000 home, but only 1% on the cost of a £249,000 home – is extremely frustrating.
There’s a small chance that Osborne might decide to introduce real reforms here; more likely, the lowest threshold for paying the tax will be raised from £125,000, perhaps to £150,000.
The best bet for voter bribes – energy bills
We’ll probably learn more about government plans to ease the pain of rising energy bills for consumers. I suspect this will be the biggest ‘giveaway’ in the statement. Any further bribes for voters will probably be saved for next year.
The state of our public finances
Given the pick-up in the economy, Osborne should be able to announce that the government deficit is moving down quickly. In March, the forecast deficit for this tax year was almost £120 billion; it will probably end up at somewhere round £105 billion by the end of the year.
The chancellor will be keen to argue that this fall is a vindication of his economic policies, but without sounding boastful. He’ll probably make a big point of saying that £105 billion is still way too high, and that only the Conservatives can be trusted to reduce the deficit further.
That’s it for my predictions. We’ll be back tomorrow with full coverage of all the juicy bits in Osborne’s statement.
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