Autumn Statement 2023 – what it means for your clients’ money

The clearest conclusion from the Chancellor’s tax-cutting Autumn Statement is that the government has decided to go to the country in the spring. Freezing the duty on alcohol until August and bringing forward an unexpectedly large two percentage point cut in National Insurance to January signposts an election before, rather than after, the summer.

From January 6 next year, earnings between £12,570 and £50,270 will attract National Insurance at 10% rather than 12% currently. This effectively reduces the basic rate of tax from 32% to 30% and benefits anyone earning more than the personal income tax free allowance.

The cut in NI is a gamble, as it effectively gives almost every worker in the country a pay rise of up to £750. This is on top of the pre-announced hike in the national living wage to £11.44 an hour. Although bond yields fell immediately after the Chancellor’s announcement - suggesting that fixed income investors are relaxed about the inflationary implications of the handout - the Bank of England may disagree.

It is important to remember, too, that the decision to freeze income tax thresholds until 2028 remains in place. The government is giving with one hand but for anyone earning close to one of these waterfall earnings levels, the benefit could soon be reduced by a move into a higher tax band. Fiscal drag is alive and well.

The Chancellor was able to inject an estimated £20bn into the economy thanks to the government’s improving financial position. He is able to meet his self-imposed fiscal rules with some ease, helped by higher-than-expected tax revenues and the recent fall in the inflation rate to under 5%.

The outlook for growth remains sluggish, however, underscoring the need for a raft of measures designed to increase investment and productivity. Some of these are significant, including the widely trailed change in the rules around setting off profits against new investment on IT and other plant and machinery in the year it is made.

For individual investors there was less in the statement than recent speculation had suggested. However, while ISA investors did not get a mention in the Chancellor’s speech, the Treasury red book did confirm some simplification of the UK’s complex savings framework. In particular, it will now be permissible to contribute to an ISA with more than one provider within a tax year. This flexibility is welcome.

The unloved Innovative ISA also gets a new lease of life with its extension to include some unlisted and illiquid investments. Otherwise, the contribution limits were left unchanged and the opportunity to make the Lifetime ISA more attractive was passed over. Venture Capital Trust and Enterprise Investment Scheme investors will enjoy an extension of tax reliefs in these schemes for 10 years until 2035.

Notable for its absence was anything on Inheritance Tax. Pre-statement speculation had flagged this as a potential white rabbit. It is possible that electorally popular measures in IHT could be in the Chancellor’s back pocket for the budget that is likely to occur just weeks before we go to the polls next year.

As expected, the government has promised a consultation on a ‘pension pot for life’. The government is right not to rush into this. While it seems superficially attractive for individuals to have the right to ask their employer to pay into their own portable pension, there are risks too.

A ‘pot for life’ model would radically change the UK pensions market and risk removing the benefits of workplace pensions and the regulatory and governance framework which protects members of workplace pension schemes.

A key part of tackling this challenge lies with the development of a pensions dashboard, and providing consumers with multiple pots to a single, consolidated view of their pension wealth. Remember, too, that savvy pension savers have been able to create their own portable pension via SIPPs for many years.

This was a very Conservative autumn budget with a number of references that will only have resonated with older voters. Jeremy Hunt promised to get ‘Sid’ investing again as the government prepares to sell its remaining stake in NatWest. No-one under the age of at least 50 will have recognised this reference to the 1986 sell-off of British Gas!

For many in that older cohort, one of the most consequential measures will be the decision to leave the Triple Lock pension guarantee intact. Raising the state pension by 8.5% to £221.20 a week is worth around £900 a year.