Autumn Statement 2023
By Alexandra Hewazy, Nick Bearne and Louise Towers
The latest Autumn Statement offered another fascinating snapshot into the health of the UK economy, as well as the pre-election intentions of the Conservative government.
Having lagged Labour in the polls for a number of months, and with UK households feeling the pinch, some Conservatives were hoping for a bold tax-cutting agenda.
Standing in the way were the UK’s stubborn inflation numbers. By lowering taxes too aggressively, the Chancellor risks re-stoking the fire that has been doused for many months by the Bank of England.
Against that challenging backdrop, here’s a brief summary of the key talking points, and their potential significance for UK wealth holders.
Prudence versus vote-winning pledges
Despite UK inflation falling to 4.6%1 – beating the Bank of England’s own forecast – and better-than-expected government borrowing figures, the Chancellor of the Exchequer wasn’t exactly blessed with room for manoeuvre.
Global economic headwinds continue to blow hard, and domestic challenges are brewing – UK growth is forecast to come in at an underwhelming 0.7%2, down from the previous forecast of 1.8%. Collectively, it stifles the government’s ability to offer many big ticket vote-winning announcements.
In the end, the announcements on business tax rates, National Insurance and pension pots were the ones that grabbed most attention.
Business tax breaks
Entrepreneurs and business owners arguably had most to cheer, thanks to the decision to make so-called “full expensing” permanent for businesses.
In the face of dwindling productivity, the government is eager to re-stimulate Britain’s economy and is hedging its bets with a move that Jeremy Hunt described as “the largest business tax cut in modern British history3.”
It means that businesses can claim back 25p in corporation tax for every £1 invested in IT, machinery and equipment.
While the announcement was hardly a surprise, having been the subject of many news headlines in the run-up, it was still significant. The Chancellor is hoping that the knock-on effects will kick Corporate Britain into life and increase its appeal for overseas investors.
Despite clamours from some corners of the government to reduce income tax and inheritance tax, the Chancellor resisted the urge, for now at least.
Two reasons probably underpin this decision: putting more disposable income in people’s pockets could undo recent progress in the battle against inflation. And keeping some of the bigger, vote-winning pledges in the back pocket for Spring 2024, might help the Conservatives closer to the time when voters go to the polls.
Ultimately, the decision was taken to cut National Insurance instead. From the 6 January 2024, the amount paid by Class 1 employees will fall from 12% to 10% on earnings between £12,571 and £50,271. Any salaried income above that will be taxed at 2%.
Meanwhile, self-employed workers who pay “Class 4” National Insurance have reason to cheer. From April 2024, they’ll contribute less, with the rate falling to 8% (down from 9%).
Workers, retirees and savers
Recognising the UK’s productivity problem, Jeremy Hunt also revealed that the government would start tightening up on benefit eligibility. He wants more workers in the workforce, and fewer outgoings from the State.
Interestingly, retirement emerged as a potential pre-election battleground. From April 2024, the state pension increases to 8.5%. The government pledged to honour the triple lock – a recurring theme with elderly voters.
Mr Hunt also unveiled a proposal to give pension savers more choice over where their employer contributes to their pension pot. As careers become more fluid and roles chop-and-change, many employees have more than one pension pot, and overlook the potential benefits of consolidation. By giving workers more power over their savings, the government is hoping that a dose of simplification will remove barriers to effective retirement planning.
Finally, ISAs – the UK’s steady tax-efficient savings solution – look set for a shake-up. From April 2024, savers will be able to fund more than one account in the tax year. The current restrictions are deemed to be needlessly restrictive, and the proposals offer savers great flexibility.
The missing ingredients
Inheritance tax and income tax remain the two elephants in the room, having been omitted from today’s statement. In reality, inheritance tax impacts only a tiny portion of UK estates – with some estimates putting the figure at less than 4%4 – which makes its voter appeal (regarding cuts) somewhat limited. That said, it is a recurring and important discussion point in estate planning conversations and should not be ignored.
The ability to cut income tax is arguably the Ace in the pack for any Chancellor. To some extent Jeremy Hunt’s hands are tied by the ongoing need to lower inflation. However, and as we alluded to earlier, it is hard to overlook the looming election. By delaying any cuts to income tax, the government is sitting on a potentially big vote-winner.
The latest Autumn Statement was an attempt to boost the UK economy and restore the government’s financial reputation in the aftermath of the short-lived Truss era.
Whether today’s announcements are enough to woo voters and claw back the poll deficits, remains to be seen.
Despite many uncertainties facing the UK in 2024, the Autumn Statement is an important reminder for wealth holders to take financial planning seriously. Regardless of who’s in charge at Number 10, there are three important areas to remember – use all available efficiencies and allowances, stay diversified, and always focus on your long-term plan.
Needless-to-say, financial planning is more complex and nuanced than this, especially when there are multi-jurisdictional considerations at play. If you’re proactive in your planning and control the things that are in your power to control, then you are more likely than not to keep your wealth on the front foot.
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