News & Insights | 23rd November 2023
3 Min Read
The build up to yesterday’s Autumn statement had been marked with an unusual blend of cautious optimism and healthy scepticism. The very words “Autumn Statement” have become a byword for Kwazi Kwarteng’s disastrous “mini-Budget” last September, which set in motion the series of events ultimately culminating in the collapse of Liz Truss’s premiership.
In advance of Jeremy Hunt stepping up to the dispatch box though, a few policies had, as ever, already made their way into the public domain, creating a buzz of anticipation, with the current political landscape adding an intriguing layer to the fiscal narrative.
The Prime Minister’s recent proclamation that it is “time to cut taxes,” was in stark contrast to the government’s “tax cuts are not on the immediate agenda” position of the past few years. Indeed, recent budgets have seen tax allowances frozen rather than reduced. With a general election probable next year and the tendency of incumbent governments to wield tax reductions as a political tool however, this change in heart perhaps comes as no surprise. This political need whilst still shackled to the ghost of last autumn’s hastily reversed, unfunded and market-crashing tax cuts, no doubt created interesting debate behind closed Treasury doors.
Opening with the usual run-down of the Office for Budget Responsibility (OBR)’s forecasts for economic growth, the Chancellor triumphantly took (likely undue) credit for the halving of CPI inflation from its 11% peak last Autumn. News that the government’s targets for debt and borrowing are on course to be met ahead of target was neatly foreshadowed by Tuesday’s data from HMRC, showing significantly higher receipts from various taxes compared to recent years.
As the “fiscal drag” effect of maintaining tax allowances against increasing incomes takes hold, the stage was set for Mr. Hunt to unveil the presaged tax decreases. While National Insurance (more on that later) dominated this week’s headlines, the intense focus on tax breaks for businesses was somewhat unexpected. The wide-ranging measures covering capital allowance expensing, foreign investment, and the continuation of business rates relief and support, to name but a few, should be generally welcomed, as will a significant inflation-linked increase in the national living wage.
From a financial planning perspective there is very little on which to report, other than the anticipated cut in the rate of NI contributions, which took the form of a subtle tweak rather than a sweeping reform. To confirm, the main rate of Class 1 NI contributions for employees, payable on annual income between £12,570 and £50,270, is due to be cut from 12% to 10%, with effect from 6th January 2024. This could represent an annual saving of up to £754 for someone with earnings at the top end of that band.
The self-employed will have to wait until the new tax year on 6th April 2024 to benefit from a reduction in their Class 4 NI contributions, with the main rate being decreased by 1% to 8%. Additionally, the fixed rate Class 2 contributions are to be scrapped altogether, while maintaining the entitlement to contributory benefits, such as state pension. These adjustments appear to align with the 2% reduction offered to employed individuals.
The government’s steadfast refusal to label NI contributions has, in effect, allowed them to neatly dodge past commitments not to cut taxes, while simultaneously targeting the “average worker,” though it is worth noting once more that the highest earners (those earning £50,720 and over – well above the c.£32,000 national average wage) are the ones who stand to benefit the most. Interestingly, these NI reforms won’t benefit retired individuals with non-earned income, potentially a significant group of Conservative voters.
Reviewing the usual personal finance topics, it is a case of business as usual, with no changes to any of the main tax rates or allowances, including the NI thresholds, other than those previously announced. As expected, annual contributions limits for ISAs, Junior ISAs and Lifetime ISAs all remain the same, and speculation regarding potential changes to inheritance tax (IHT) proved unfounded.
A closer reading of the details contained in the “green book” reveals a few intriguing points relating to ISAs. From April 2024 the rules will allow multiple subscriptions into the same type of ISA (e.g., stocks and shares ISA), providing flexibility for investors wishing to use different providers or investment strategies. Removal of the need to reapply for an existing ISA each year will also help to simplify the process for investors who add to their accounts intermittently.
Following the reforms announced in March’s budget there was no specific mention of pension regulations, other than a continued commitment to remove the lifetime allowance as part of the upcoming Autumn Finance Bill 2023.
Separate to the main statement, further information was also published which provided some much-needed clarity regarding the practical implications of the March changes. We are pleased to confirm that pension death benefits taken as income (for example as dependant’s flexi-access drawdown), will remain tax free where the pension holder died before the age of 75. This will maintain the existing death benefits regime for pensions, which is naturally extremely helpful for planning purposes.
Despite the reduction in official inflation figures (CPI) over recent months, stubbornly high prices remain a challenge for households across the country. It is therefore reassuring to note that, the OBR is forecasting that inflation will continue to fall gradually, down to 2.8% by the end of 2024. It remains to be seen how quickly the Bank of England might trim base rates in response to this.
This email is intended as a summary of the main impact of the Autumn Statement on the world of personal finance. As ever, full details of the planned tax and spending reforms can be found on HM Treasury’s website using the following link: