Spring Statement: What it DIDN’T mean for your money

Budget or not, the Chancellor has just missed the opportunity to make life more manageable

Building for the future... but there wasn’t much concrete help for first-time buyers (PA)

Squint hard and you could almost see them whizzing by – the chances the Chancellor of the Exchequer had this week to set a few things right, to make everyday life simpler, easier, more affordable.

Busy comparing himself with a fictional plaything, Mr Hammond didn’t even give them a wistful backwards glance as he instead declared imminent victory over everything from single-use plastic to the legacy of the financial crisis.

So while we would like nothing more than to unpack the usual list of tax rises and incentives, initiatives and loophole closures that have typically emerged from the Chancellor’s despatch box leanings, this time the most important implications for our wallets come from what he could have – should have – said but didn’t.

Property

To give him his due, Mr Hammond did warn us this would be a dull affair (not quite the way he put it) – a departure from the slightly bizarre biannual tax-tinkering budget that he inherited. This was in many ways exactly what it said on the tin – a spring statement.

This week’s big No 11 event was an update, a chance for Hammond to underline the positives from previous budgets and other announcements, like next month’s living wage increase and the housing investment programme.

Around £44bn has already been allocated to the Government’s best guess as to how to dig ourselves out of the housing crisis, which, he claimed again on Tuesday, will “raise housing supply to 300,000 a year by the mid-2020s”.

Old habits die hard, though, and Mr Hammond couldn’t resist adding a little nugget – 215,000 new homes in the West Midlands.

The only issue, of course, is that independent projections suggest we already need 250,000 new homes every year to come close to fulfilling demand – a target that has been missed by hundreds of thousands of homes every year for decades.

The inadequacy theme continued, however, with Hammond’s note on London’s total number of affordable homes rising to 116,000 by 2022, and news that 60,000 first-time buyers have benefited from stamp duty relief on properties worth up to £300,000.

“It would be interesting to see how many of those were bought in London,” notes Sam Mitchell, CEO of online estate agents HouseSimple.com, perhaps thinking of the average £423,000 price tag for a first-time owner in the capital.

“The Chancellor also didn’t go into detail about the average amount saved by first-time buyers. For many who have bought in areas where house prices are well below the UK average, the stamp duty savings are likely to be so small as to be meaningless.

“To benefit from the full £5,000 saving, you’re looking at buying a property between £300,000 and £500,000, and for most first-time buyers that’s unlikely to be within their budget.

“The real issue for first-time buyers is saving enough money for a deposit.”

First-time buyer deposits average £35,463 in East Anglia, £36,289 in the South-west, £51,457 in the South-east and £112,604 in Greater London, according to research from Halifax.

Income

“Arguably, the most eye-catching announcement for our personal finances was the Chancellor’s prediction that real wage growth would turn positive in the first quarter of 2019, which has various implications for our personal finances,” suggests Maike Currie, investment director for Fidelity International.

“Despite a record number of people being in work, our wages have been increasing at a glacial pace. This has hurt hardworking households because our earnings have fallen behind inflation, which stood at 3 per cent, according to latest CPI figures. This means that as each month rolls by, we’ve been getting progressively poorer.”

Weak wage growth isn’t a new phenomenon with earnings falling at the height of the credit crunch – and despite recovering from those lows they are now flatlining.

“Typically, high employment should boost earnings because it means workers have greater bargaining power when it comes to the wage negotiation table,” says Ms Currie. “It also means employers who want to retain or attract good workers need to start paying more.

“A possible reason for this ongoing disconnect between employment and wage growth could be the long-running backdrop of economic uncertainty. Indeed, one of the big questions this year is whether the global economic recovery will eventually feed through to wage growth. If it does follow Hammond’s forecast, this should be supportive of consumer spending, the linchpin of the UK economy.”

Savings & investments

Meanwhile, as new research shows just how bad our financial literacy is, a committee of MPs and industry experts had spent the run-up to the statement urging Mr Hammond to radically simplify the tax-free options for our savings and investments, in a bid to alleviate confusion and aid good savings habits, with one ‘Everything ISA’.

Tom Selby, senior analyst at AJ Bell, says: “The success of ISAs was built not only on the tax benefits available but the simplicity of the rules. However, politicians have gradually chipped away at this through the layering of unnecessary complexity, forcing savers to wade through a quagmire of allowances and rules to find the product they want.”

Indeed, it is possible a ‘Care ISA’ will be added to the mix as policymakers scrabble for sticking-plaster solutions to the long-term care crisis.

“Complexity is the enemy of good savings policy, and the Government should focus its attention on making the rules governing both pensions and ISA as straightforward as possible,” adds Mr Selby.

“The UK’s ISA regime is ripe for simplification, and while there may be different views on how this should be achieved there is no doubt the goal of making the system easier to understand and engage with is the right one.

“There is a strong argument for incorporating the features of all the main ISA products – including cash, stocks and shares, junior, innovative finance, help-to-buy and lifetime – in a single product.

Pensions

“We’d been told to expect no new policy announcements in the Chancellor’s first spring statement, and that’s precisely what we got,” notes Steven Cameron, pensions director at Aegon.

“The updated forecasts of lower price inflation and a return to real earnings growth will have knock-on implications for future triple lock increases to the state pension. And there could be implications for final salary pension scheme funding, which is impacted positively by lower price inflation but negatively by higher earnings growth for members who are still building up benefits.

“While Brexit is grabbing almost all the Government’s attention, it’s still disappointing not to have heard even a little on other longer-term government priorities in a number of key areas. The Government announcement earlier this week that 10 million Brits can expect to live to the age 100 is a stark reminder of just how important it is to tackle the issue of social care funding.

“Similarly, while automatic enrolment means nine million extra employees are saving for their retirement through workplace pensions, the self-employed are excluded. With the Chancellor saying the Conservatives are the champions for small businesses, we need new policies to stop self-employed becoming second-class citizens in retirement.

“However, as we enter the new tax year there are a raft of changes announced previously. These include the first increase to the pension lifetime allowance since 2016, increases in auto-enrolment minimum contributions, changes to tax bands, changes to income tax rates for those in Scotland, and a cut in the tax free dividend allowance. For many, there will be benefits in seeking financial advice.”