Jeremy Hunt took to the dispatch box for the third major statement of his tenure as Chancellor with more fiscal headroom for tax cuts than might have been anticipated earlier in the year. The pre-statement message from the Treasury was that “The Autumn Statement will help to get people back into work & boost economic growth” and so some combination of tax cuts and changes to benefits was widely anticipated.
Economic Background:
Annual CPI inflation fell to 4.6% in October, down from 6.7% in September. Whilst this level of inflation is still more than twice the Bank of England’s long-term target of 2%, the latest figures do lend some weight to a more optimistic medium-term outlook. However, Bank of England Governor, Andrew Bailey was at pains earlier this week to signal that we are not out of the inflationary woods yet.
Notwithstanding the positive shifts in inflation, there remain significant challenges facing the UK economy. GDP growth stood at an annualised 0.6% in the third quarter, suppressed by inflation and rising interest rates and growth is not expected to pick up significantly in 2024 as the same factors continue to weigh heavily on domestic growth. OBR growth forecasts are lower than they were in March by more than 50% and the BoE forecasts are lower still.
OBR has forecast that underlying debt will be 91.6% of GDP next year, 92.7% in 2024-25, 93.2% in 2026-27, before declining in the final two years of the forecast to 92.8% in 2028-29. The OBR do point out that the falling debt figures assume that fuel duty will rise and that this has not been the case in recent budgets.
Key Headlines
Pensions:
- One interesting potential development for pensions is the ‘pot for life’ which will mean workers can tell their employer where they would like their pension contributions to be invested. This is not policy yet and we expect this proposal to be fleshed-out following consultation.
ISA:
- The ISA allowance remains at £20,000 a year.
- From April 2024 investors will be able to contribute to more than one ISA of the same type in a single tax year provided the total contribution does not exceed the £20,000 limit. Currently you can only contribute to one ISA a year.
- Also, from April 2024 investors will be able to partially transfer their ISA holding with one provider to a new provider. Currently you can only transfer an ISA’s entire value. This will make it possible for savers who wish to invest some of their cash ISA in to a share portfolio to do so.
Corporate and Personal Taxation:
- Class Two National Insurance have been abolished.
- Class Four National Insurance cut by 1 percentage point to 8%.
- Employee National Insurance cut by 2 percentage points to 10%
- Income tax allowances and rates remain unchanged meaning that wage inflation will push up the HMRC tax take, so-called ‘fiscal drag’.
- 75% Business Rates discount for retail, hospitality and leisure sectors will be extended for another year.
Cost of Living:
- Universal Credit will rise in line with the September’s CPI figure of 6.7%
- Alcohol duty is frozen until August 2024
- The pension triple lock will remain in place. Full state pension will be increased by 8.5% next year.