This week saw Chancellor George Osborne deliver his Spending Review with news of around 480,000 public sector job cuts over the next four years.
The Spending Review is designed to help deal with our record national deficit and follows measures announced in the June Budget. Along with the public sector job cuts, we heard about intentions to cut the budgets of government departments by an average of 19%.
But what does the Spending Review mean for you and your money?
One change that a lot of people will notice is the increase to the state pension age. From 2020, the state pension age will be 66 for men and women.
This pension age increase comes along six years earlier than previously planned and means further acceleration of the currently ongoing age rise for women. This measure looks set to save the government around £5bn a year, by getting all of us to work for longer in the future.
Commuters are set to see their train fares increase, with a rise in the regulated cap on rail fares to 3% above inflation for three years from 2012.
Those on benefits are likely to see less money in their pockets each week as a result of the Spending Review and the previously announced Child Benefit cuts where one parent in a household is a higher rate income taxpayer. This cut alone is forecast to generate £2.5bn.
The Spending Review contained an additional £7bn of welfare budget cuts. There will be a new 12 month time limit imposed on employment and support allowance. This could result in an additional 200,000 claimants moved onto Jobseeker’s Allowance with a lower level of benefits.
Banking customers, which covers the majority of people in the UK, are likely to see higher banking charges in the future as a result of a permanent banking levy. The government expects to raise around £2.5bn a year with a tax on the total size of bank balance sheets.
We have every expectation that the banks will simply pass this cost on to their customers.
Active members of public sector pension schemes will see the level of their employee contributions increased in order to maintain benefit accrual. This follows Lord Hutton’s recent interim Public Sector Pensions Review and could save £1.8bn a year by 2014/15.
Employers should be starting to budget now for the cost of compulsory pension contributions from 2012, when the National Employment Savings Trust (Nest) is introduced. This was designed to help encourage people save for retirement, with employers having to contribute alongside contributions from employees and tax relief added to these contributions.
This Spending Review will result in changes to the financial plans of many people. It should be viewed as a catalyst to review existing plans and take action where necessary.
Photo courtesy of themostinept.
