Queen's Speech risks: worries over house prices and tax
The Queen's Speech is a time for pomp, ceremony and tradition. One of the more timeless traditions is for the Prime Minister to talk up the new era of joy and plenty to be ushered in by the changes under the new Parliament: where the mistakes of the past will be swept away in favour of a shining new utopia where everyone gets their own house, pays little tax, and gets a free unicorn.
David Cameron has gone so far as to claim the measures will "bring our country together". However, early reactions from some of the experts would seem to indicate he's erring somewhat on the side of optimism, with empty promises on tax, and dangerous proposals for housing.
Tax fears
The tax measures, on the face of it, are great news for your pocket. The government has promised no rise in income tax rates, VAT or national insurance before 2020, and no one working 30 hours a week on the minimum wage pays any income tax at all. It will also raise the amount you can earn before you pay tax to £12,500.
However, Tim Walford-Fitzgerald, personal tax expert at chartered accountants, HW Fisher & Company, says that the much-vaunted five-year "tax lock" is not as straightforward as it looks. He explains that the government can easily stick within these rules and still raise taxes, saying: "There are more subtle ways of increasing the revenue's tax take by adjusting the rules and thresholds."
He points out that by freezing the VAT registration threshold, over time more small businesses will need to register for VAT, which means they'll have to charge their customers VAT, and we'll end up paying this tax on more of the things we buy. Likewise, if wages rise faster than the increase in the higher rate band of income tax, then as wages rise, more people will end up paying income tax at 40% or 45%.
What could be even more damaging, Walford-Fitzgerald highlights, is that to meet his spending pledges, the Chancellor will inevitably need to "introduce greater complexity". This could herald another raft of stealth taxes .
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Housing
Housing proposals, meanwhile, are being lambasted not just for being ineffective, but for being positively dangerous. The key is the extension of the right-to-buy scheme to 1.3 million social housing tenants in England. They will be able to buy the homes they rent at a discount.
Calum Bennie, savings expert at Scottish Friendly warns that this will hurt: "those that those who do not qualify and are in the process of saving for their first home." He warns that "They may want to start looking at buying sooner rather than later. That's because if the 'Right To Buy' policy of the 1980s, is anything to go by, in time, the increase in privately owned property will not only drive up house prices, but leave many unable to get on the property ladder for generations to come."
No solution
Jon White, UK Managing Director of the global construction consultancy Turner & Townsend, said this policy also fails to address the chronic shortage of housing. He explains: "The government has responded to its critics by insisting that for every housing association property sold, an additional affordable home will be built. But with construction costs steadily rising - and with demand already outstripping capacity in many parts of the UK - the housing associations are likely to have to borrow to meet the cost of building this new stock. The construction industry has responded well to the surge in demand for housebuilding, but it has some lasting capacity issues and property price inflation is a real risk."
Meanwhile, for anyone relying on working age benefits, the news was every bit as dire as they may have been fearing, with a reduction in the benefits cap from a maximum of £26,000 per household to a maximum of £23,000, a freeze on working-age benefits, tax credit and child benefit for two years, and an end to the automatic entitlement to housing benefit for 18-21-year-olds.
Things don't look particularly promising for those holding out for their free unicorn either.
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