Autumn Statement 2023: the hunt for growth?

What a novel idea! A whole year with the same Prime Minister and Chancellor of the Exchequer. As Chancellor Jeremy Hunt prepared to deliver the 2023 Autumn Statement, rumours were of course flying around about the potential content.

In 2017, a change introduced was supposed to move the main Budget Statement to the autumn, to avoid a rush of financial activity after a Spring Budget and before the 5 April tax financial year-end. However, Covid-19 threw off everyone’s timing, and since then it has been a bit of a ‘guessing-game’ as to how detailed each of these events would be.

Throw into the mix a general election in the next 12-14 months, and all bets were off for today. The UK government needed to make some impact now, with the polls continuing to worsen for Prime Minister Sunak and the Conservative government in Westminster. Cue early morning briefings and memos ahead of the main event.

So, what would there be for the UK workforce and its entrepreneurs, or those who are retired and relying on their pensions, savings and investments? Tax cuts for working individuals and companies? A raft of changes around pensions and investment rules and allowances? There was also much speculation around a long-anticipated reform of Inheritance Tax, although many commentators felt that a significant change was unlikely at this point. According to Jeremy Hunt, however, “everything is on the table” is his “Budget for Growth”.

As usual, updates on UK PLC led the way with latest forecasts from the Office of Budget Responsibility (OBR). A recession was forecast in 2023, but the OBR suggests the economy will actually grow by around 0.6% this year, and by 0.7% next year. National debt as a proportion of GDP is down more than expected due to better performance of the economy, and scheduled to keep falling ahead of plan. Estimates meant an unexpected £20bn ‘windfall’ for the Chancellor to deploy.

On inflation, there were cheers when the Chancellor noted that this has now more than halved from 11.1% a year ago, down to 4.6% last month, but still sticking around 2.8% by the end of next year, according to the OBR. This is highly likely to mean that interest rates will stay higher for longer; this is good for savers, but bad for borrowers and the ongoing cost-of-living squeeze. As a financial planner, this serves as a reminder to keep reviewing available returns on cash savings and investments, as well as mortgage and business borrowing.

In his “Budget for Growth”, the Chancellor sought to unlock investment in business to the tune of £50bn, including £4.5bn for the manufacturing sector, and further boosts for apprenticeships.

Other measures included an extension to business rates relief for various sectors including hospitality & leisure along with, most notably, an announcement that full expensing for capital investment will be made permanent; a saving of up to £250,000 in corporation tax for every £1m invested in infrastructure and other capital projects. No change to corporation tax rates, however.

The Chancellor will also bring forward additional plans to encourage investment in British business, such as a pledge to “support the establishment of investment vehicles for pension funds to use” - through initiatives like the Long-term Investment for Technology and Science, the British Business Bank and the Pension Protection Fund.

An additional step in the ongoing path to reform the pension industry was the announcement to consult on a legal right for employees to be allowed to direct their employment pension contributions into any existing pension plan, and not be forced to join a new one. As I wrote two years ago, the inability of many pension investors to keep track of their various pension pots is a huge problem. At that time, it was estimated that around £20bn worth of pension savings were in ‘unclaimed’ accounts, largely in small pots resulting from employees changing jobs or moving address. The delayed rollout of the planned Pension Dashboard until late 2026 at the earliest hasn’t helped, so one key request of your financial planning partner should be to review your old pensions and get them organised in good order.

Good news for pensioners came in the form of ongoing adherence to the “triple lock” with state pensions set to increase by 8.5% next April. Most other state benefits will go up by 6.7% in the spring, in line with September’s inflation rate.

The big-ticket moments in the statement were reserved for measures affecting employees and the self-employed:

• Compulsory Class 2 national insurance (NI) contributions for the self-employed are to be abolished, whilst retaining their entitlement to state pension credits
• Class 4 NI contributions drop by 1%
• Employees’ NI contributions will reduce from 12% to 10%, with effect from January (rather than the new tax year in April). Cynics would suggest that this will allow the Chancellor to deliver further measures in the usual Spring Budget announcement, as a way of gaining momentum and credibility as a tax-cutter going into the general election
• Increase in the national living wage by 9.8% to £11.44 per hour.

Despite these measures, the ongoing freeze on tax allowances means that the overall personal tax burden in the UK is still forecast to increase over the next few years. This is referred to as ‘fiscal drag’ as increasing wages push more people into higher tax bands.

For now, therefore, no announcements on tax thresholds, Capital Gains Tax rates, Inheritance Tax reforms, or pension limits. The Autumn Statement news doesn’t reverse the tax increases introduced since Covid-19. However, we still have a least one, but probably two more budget announcements to come ahead of the general election, so expect more news in four months or so and then again next autumn.

In the meantime, if you are seeking greater financial freedom, more time to enjoy yourself, or simply looking at your choices for the future, please talk to us about reducing your tax burden, organising your pensions and investments, or planning your assets and affairs for the next generations. We will hear you.