Autumn Statement 2016: Financial upheaval ahead for families

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Some experts are predicting a "quiet" Autumn Statement - but significant upheaval for family finances is already coming down the line.

The freeze on major benefits, which continues until 2020, may bite harder as inflation is set to accelerate - driving up the cost of living.

Tax changes are planned but are yet to be put in place.

Chancellor Philip Hammond may decide to bring forward some of those moves and delay or reverse others.

Tighter belts

The main working age benefits and tax credits were frozen in cash terms for four years from April 2016. That includes entitlements such as jobseeker's allowance and income support.

That income freeze could coincide with an acceleration in inflation, adding pressure to those on low incomes.

According to the Institute for Fiscal Studies, the falling value of the pound since the Brexit vote will push prices about 2.6% higher than would have otherwise been the case.

Yet, there is some relief on the way for some squeezed working families.

The government has already promised to raise the amount people can earn before they are subject to income tax.

Known as the personal allowance, it is currently set at £11,000 and it has already been announced that it will go up to £11,500 in April 2017. The Conservatives have promised to raise this to £12,500 by 2020-21.

And there's speculation that on Wednesday the chancellor may bring forward that new threshold.

For the least-well-off families, changes to National Insurance might be more helpful.

There are calls for a raise in the threshold at which national insurance is paid - currently £8,060 for individuals.

Tom McPhail, of Hargreaves Lansdown, said that would be "a more useful intervention".

Better-off households are also in line for a tax boost. The Conservatives have pledged to raise the threshold at which people start paying the higher rate of tax to £50,000 by 2020-21.

At present it is £43,000 and will go up to £45,000 in April next year. In Scotland, where the devolved administration led by the SNP has some control over income tax, the higher threshold will be £43,387 - an inflation linked rise.

Top-up savings

Another major policy already in place for next April is the introduction of the Lifetime Individual Savings Account (LISA).

Investors must be aged between 18 and 40 to open one of these new products. They can save up to £4,000 a year, and the government will add a 25% bonus. Over a lifetime, savers have the potential to earn a bonus of up to £32,000, plus any investment return on top.

However, savers keep the bonus only if they use the money to buy their first home, or are over the age of 60. If neither criteria is met, there is a heavy withdrawal charge.

There has been some pressure on the chancellor to delay the introduction of LISAs, with critics including from former pensions minister Ros Altmann, but there is no sign of that as yet.

Other changes already announced are:

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There has been considerable debate over the future of pensions tax relief. The chancellor may be tempted to change the annual or lifetime allowance of pension contributions that are free of income tax, currently £40,000 and £1m respectively.

Accountants are calling for stability from the chancellor, given the significant changes to taxes and benefits in recent years, alongside the administrative workload that comes with Brexit.

Among the appeals is a plea to delay the shift for small businesses from annual tax returns to quarterly returns made online.

"The new Making Tax Digital (MTD) reforms for SMEs should be deferred to relieve additional burdens on business while the economy fluctuates," said Chas Roy-Chowdhury, head of taxation at the ACCA accountancy body.

Tina Riches, national tax partner at accountancy group Smith and Williamson, said: "Individuals and businesses need a clear picture of where the tax system is going, not another period of jumping back and forth.

"Much complexity has arisen from governments making ad hoc changes, without adequate consultation, to try and deal with political whims. These changes have then, due to not being properly targeted or failing to receive adequate consultation, had unintended consequences and needed further alterations or have given rise to significant administrative burdens."

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