The Autumn Statement, the second big fiscal event of the year, was delivered in the House of Commons by the Chancellor of the Exchequer, Jeremy Hunt.
Front and centre in Mr Hunt’s thoughts was awakening the UK economy from its current torpor, as he looked to capitalise on a little more headroom presented by higher tax revenue than previously anticipated and inflation that appears to be in more orderly retreat.
However, OBR figures released alongside the statement showed a sharp downgrade for economic growth in 2024 and 2025 compared to previous forecasts – from 1.8% to 0.7% for 2024 and from 2.5% to 1.4% for 2025. The OBR also upgraded its forecast for average inflation this year to nearer the Bank of England’s estimate of 7.4%, so the Chancellor’s wriggle room was smaller than he might have liked. Higher inflation tends to increase the tax take, but also welfare payments and the cost government spending.
Most measures announced were therefore aimed at promoting growth and unlocking investment including some small business rate reductions. ‘Full expensing’, which means a tax deduction for businesses expenditure on qualifying plant or machinery that was set to expire in 2026, was made permanent.
Having previously been dismissive about the prospects of broad tax cuts, suggesting that inflation and interest rates would need to be much lower first, Mr Hunt emphasised the economy had turned a corner, allowing him to start to ameliorate the tax burden which taxpayers will hope is part of a trend that continues into the Budget next spring.
Autumn Statement 2023 summary
1. National Insurance cut
Personal allowances and tax bands have been frozen since 2021, pushing more people into higher rates. Ahead of the Autumn Statement there had been widespread calls to reverse some these freezes planned until 2028.
Rather than tinker with income tax, the Chancellor opted to focus on National Insurance, which applies to employed or self-employed income rather than other forms of income such as interest or rental income, underlining his focus on working households.
At present, employees earning more than £12,570 a year pay 12% on their earnings up to £50,270, while self-employed workers pay 9%, but these levels are to be reduced to 10% and 8% respectively, representing an average annual saving of £450 for an employed individual with average earnings. Class 2 National Insurance, a flat rate for the self-employed is to be abolished, simplifying tax for many.
The continued freeze to the national insurance thresholds, and for income tax too, effectively stands to dilute some of this extra spending power for workers as inflation continues to ratchet up. While some media have floated the possibility of income tax cuts, this did not materialise in the Autumn Statement.
2. ISA reforms
Individual Savings Accounts (ISAs) are one of the most tax-efficient ways of saving, as the returns from the money or investments held in them are tax free.
Documents attached Autumn Statement unveiled a tweak to the ISA rules to take effect from next April. Individuals are currently restricted to opening and paying into only one of each type of ISA in any tax year. This rule will be scrapped from April 2024, meaning savers or investors will be free to open as many ISAs as they like without losing their tax-free allowance so long as they keep to the overall contribution allowance of £20,000.
There were other small reforms to the ISA regime from April 2024, notably accommodating long-term asset funds, a type of open-ended fund invested in illiquid assets including private equity and real estate.
Ahead of the event, there had been rumours the chancellor would also increase the £20,000 ISA limit, possibly through the introduction of an additional allowance for investing in UK-listed companies, but it appears this will now be considered at a later stage. There were also no changes to the Lifetime ISA where there had been calls to scrap the exit penalty and for the £450,000 property limit for first home purchases to be increased.
3. State pension triple lock
Under the terms of the triple lock, the state pension increases each year by the highest of inflation, wage growth and 2.5%. Mr Hunt confirmed the prospective increase next year is 8.5% with wages, including bonuses, having grown by that amount in the relevant period to July, which was higher than the relevant annual rate of inflation.
This means pensioners are in line for another hefty income hike next April following the 10.1% increase this year. A full new state pension will jump to £11,502 from £10,600 this year. There had been speculation that the uplift could be watered down by excluding bonuses, but the chancellor left the formula unchanged.
A call for evidence was announced surrounding the concept of a ‘pot for life’ whereby employees have the right to nominate a pension that their employer pay into. This could make it easier for people to keep control of their pension provision as they would have a single account rather than acquiring an increasing number of accounts as they change jobs.
Although this could cut down on the administration, and potential confusion, for individuals it does potentially bring more complications for employers and a particular burden for smaller businesses. It’s also unclear whether consumers would stand to benefit overall as it could erode some of the economies of scale that the large providers of workplace pensions provide. An open discussion of the pros and cons seems like a sensible move.
Meanwhile, there was more detail on plans to help pension schemes invest in more illiquid assets with newly designed investment vehicles. This is part of the Mansion House reforms previously announced, where several large pension providers pledged to put 5% of their default fund assets into high growth British businesses by 2030.
5. Inheritance tax
A reform of inheritance tax (IHT) was another source of rumour ahead of today’s statement with a reduction to the a rate of 40% on the value of estates worth more than the relevant ‘nil rate band’ touted as a possible move. Dubbed the least popular tax, many more families are finding themselves paying it because of a freeze to the tax threshold and higher asset prices, especially homes.
However, there was no mention of it in today’s statement and it seems likely that the government will reserve this as an idea for a Conservative election manifesto pledge.
6. Venture capital trusts
It has also been confirmed that the Venture Capital Trust (VCT) ‘sunset clause’ has been extended to 2035. The VCT scheme provides funding to British growth businesses, and this news will provide welcome clarity both for those companies looking to use the scheme to grow and for investors considering investing this tax year.
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Guide to Tax Year 2023/24
If you don't use your tax allowances before the end of the financial year, they could be lost forever. Find out how to save tax with an ISA, pension, JISA or investment account.See more