As Jeremy Hunt prepared his Autumn Statement in the face of devastating poll numbers, the rumbling drama at the Covid enquiry and the constant melo-drama of his own party, he may well have thought; ‘you can’t say I haven’t made progress.’
A year ago, in his first Autumn Statement, he stood up to claw back some semblance of credibility following Liz Truss’s disastrous ‘mini’ budget. He was forced to row back on a raft of tax cuts designed to stimulate the British economy in order to preserve the willingness of international lenders to finance our prodigious government borrowing.
Since then, he has only had bad news to dole out. Today was his attempt to give us just a little good news, fuelled by the fact that the numbers have worked in his favour - creating a little wriggle room for him to announce tax cuts that might help close some of the enormous polling gap to Labour and maybe actually help the country.
Some had predicted that to enact tax cuts he would be forced to fiddle the system for applying inflation-based rises to benefits – picking a different date when the inflation number was low. He has avoided having to do this, and so shut off a key attack line from Labour.
However, the good news he could dole out was thin gruel. Putting all the political spin aside, the context here is clear. The Office of Budget Responsibility (OBR) expects real household disposable income per person (a measure of the real living standards we experience) still to be below 2019 levels in 2028 – a decade where things did not get better. And we should remember that the OBR has been more optimistic about growth than the Bank of England.
Putting these big picture political questions aside though, our job is to understand the specific implications of the announcements for your finances. So here are our top seven takeaways:
1. National Insurance
The statement includes a provision to cut the main employee National Insurance by 2p, double what had been expected and the big rabbit out of the hat moment for the Chancellor. This will save someone on the average salary over £400 a year. The measure will come into force from the 6th of January 2024.
This will be welcomed by most but should be noted that it comes at a time when income tax bands have been frozen until 2028. This is an enormous stealth tax that according to the Resolution Foundation will cost taxpayers £40 billion more a year. The wriggle room the Chancellor has for this reform is only there because of the ‘fiscal drag’ created by this freezing. So, it is a welcome move but dwarfed by the huge personal tax burden created by government borrowing during the pandemic-era. The tax burden on taxpayers is at its highest-level on record and will remain so after this cut.
2. State Pensions and Benefits
The Chancellor confirmed that the state pension will increase by 8.5% from next April. This means that the government chose to use the higher September inflation reading to set the rate, rather than save money by using the October number. He also confirmed that key benefits like Universal Credit would increase by 6.7% and that housing allowance would also increase having previously been frozen– a key concern from anti-housing poverty campaigners.
3. Private Pensions
The Chancellor announced that he would consult on giving savers a legal right to pay pension contributions into their existing pension pot when they join a new employer. This is designed to prevent employees ending up with multiple pension pots that can be costly to consolidate. This puts more power in the hands of ordinary pension holders and will enable them to keep their finances better organised through their financial adviser. But so far this is only a consultation. We can expect it to take some time to come into existence and be heartily resisted by small business owners who will complain about the administrative burden.
4. Welfare Reform
A key pressure point on the Chancellor from the right of his own party has been the call for tougher measures to get the long-term unemployed back to work. High vacancy rates in the economy, in excess of one million, have been a key drag on UK economic growth. Labour has argued that more than seven million people on NHS waiting lists make up a lot of this number and that this should be the key focus to reduce it. The Chancellor however has focused on ‘helping’ those with long-term sickness with a new policy that will place an emphasis on encouraging those who are ill to work from home. There is new money to help the long-term unemployed of £1.3 billion. However, it comes with the requirement for a mandatory work placement after 18 months and a promise to stop benefits for those who refuse to participate in the scheme for more than six months.
5. Self-Employed People
The Chancellor has sought to help the self-employed by abolishing Class 2 national insurance payments. This small amount will see a saving of just over £3 a week. The Class 9 national insurance rate will also fall from 9% to 8%.
6. Full expensing of purchases by businesses
The Chancellor announced that he will extend the initial three-year period in which he had offered businesses a full tax break on any investments they make to buy significant new pieces of equipment. It will now be a permanent move. In essence this reduces the first-year cost of buying a new piece of plant of machinery by 25%. The move for a permanent approach to business taxation is a response to criticism that many are choosing to locate outside of the UK where they have enjoyed more stable business tax arrangements rather than constantly changing temporary measures.
7. Long-term ISAs
The Government has announced that a new ‘Innovative Finance ISA’ will be created from April 2024. This will allow tax-free investments into long-term asset funds. This marks a change in approach as the government has previously been reluctant to allow these in ISAs as they require savers to lock-up their money for more than 90 days. The government is also proposing a measure to enable the ISA allowance to be used across multiple products in any one year, through a central investment portal. Much more detail is needed on this scheme to understand its practical uses.
And what we didn't get..
Many had hoped that the Autumn Statement would include measures to help savers. For example, increasing the ISA allowance which has been fixed at £20,000 since 2017 despite significant inflation rises since that time.
And the much-trailed possibility of a cut to inheritance tax was absent. The Chancellor presumably decided that whilst it would appease the right of his own party, it would be too contentious whilst the freezing of income tax bands is bringing another six million of the lowest paid into the income tax system.