How does the ‘Autumn Statement for growth’ affect you?

Reductions in NI and supply-side reforms might have dominated the Chancellor’s Autumn Statement speech, but amidst the 110 measures in his budget are other noteworthy policies.

With inflation having fallen to 4.6% in October, from a high of 11.1% the year before, and tax receipts up, the government found itself with more fiscal headroom than expected going into the Autumn Statement on 22 November. Chancellor Jeremy Hunt grasped the opportunity as he took to the despatch box in the House of Commons to unveil an “Autumn Statement for growth”.

In a notably more upbeat presentation than the cautious tones of the Spring Budget in March, when the Chancellor said "the best tax cut right now" is to ensure inflation falls, the government sought to convey the UK as having "turned a corner" from the financial struggles of the past few years. Policies to drive growth are now firmly placed front and centre of the government’s plans.

Cuts to National Insurance

The headline intervention in those plans came courtesy of cuts to National Insurance. Employed workers will see the NI they have to pay on income between £12,570 - £50,270 reduce by 2%, from 12% to 10%. Rather than wait until the new tax year to implement, the Chancellor said he will introduce emergency legislation to ensure this particular policy rolls out on 6 January 2024.

NI will also be cut for self-employed workers, who currently have to pay both Class 2 NIC (£3.45 per week if their profits are above £12,570) and Class 4 NIC (9% on profits between £12,570-£50,270 and 2% on profits over £50,270). The government has decided to abolish Class 2 NIC entirely while also reducing the 9% band of Class 4 NIC by 1%, down to 8%.

Despite this tax cut, it’s unlikely many people will feel better off. High inflation along with the decision to freeze income tax bands until 2028 is pushing more people into higher tax rates. By 2027-28, Britain’s tax burden will be at its highest since World War II, according to the Office for Budget Responsibility. The OBR has also said real household disposable incomes are still contracting at the fastest pace since the 1950s, as inflation is eroding the real value of wages.

Labour's Shadow Chancellor Rachel Reeves said in recent years the government has already put in place tax increases, either explicitly or through fiscal drag, “worth the equivalent of a 10p increase in National Insurance”. The cuts in NI will “not remotely compensate” for this, she said.

Gill PhilpottGill Philpott, Tax and Trust Specialist at Ascot Lloyd, adds: “What the Chancellor also failed to mention are the planned changes to the way the self-employed will have to submit their tax returns and pay their taxes. From April 2026 self employed businesses with income over £50,000 will need to submit 5 returns a year, rather than the one submitted currently.  From April 2027 this will be extended to self employed businesses with income over £30,000. 

Accountants are likely  to charge  more to file multiple times per year rather than just once. So while the saving in NI is positive, this is balanced against the additional administrative costs being placed on the self-employed in the next few years.  With the eventual introduction of quarterly payments this will cause a cash flow disadvantage when compared to the current system of paying tax twice per year."

This new regime will also apply to landlords.

Pension changes

It’s also worth noting that as NI is not paid on pension income, retirees will not benefit from the tax cut. Those over the state pension age, however, will benefit from the decision to once again maintain the triple lock, meaning the state pension will rise by 8.5% in April 2024 having already jumped by 10.1% in April 2023. Those on the full, new state pension will get an extra £902 per year from April, while those who reached state pension age before 2016 will get an extra £692.

There was little else to do with pensions in this Autumn Statement, certainly compared with the Spring Budget in which pension reforms were at the heart of the government's plans, including increasing the annual tax-free contribution allowance from £40,000 to £60,000. There was, however, an update to the other marquee policy in the Spring Budget: the abolition of the pension lifetime allowance. This had still yet to be legislated, leaving the change up in the air.

The government has now confirmed it will legislate in the Autumn Finance Bill 2023 to remove the lifetime allowance from 6 April 2024. Previous reductions in the allowance, down to the current cap of £1,073,100, disincentivised higher earners from saving into their pension to avoid a tax charge of up to 55% on their retirement pot. Its abolition will give those who stopped contributing because they already hit or thought they would hit the cap a chance to invest more.

The abolition of the pension lifetime allowance might well be short lived, however. If the Labour Party wins the next General Election, which will be held no later than 28 January 2025, it has said it will immediately reinstate the lifetime allowance. Despite current polling suggesting Labour is the most likely party to win the General Election, Mark​​​​ Sleeman, Chartered Financial Planner at Ascot Lloyd, says this shouldn’t stop people from taking advantage of the new rules.

Mark Sleeman“You've got to play with the hand you're dealt,” he says.

“If legislation introduced in April 2024 allows you to contribute to your pension such that its value exceeds the lifetime allowance that existed before April 2024, but the rules are then changed again some months or years later to reintroduce the allowance, I would be very surprised if they didn't bring in protections.

People will have done it in good faith, so I think they'd be hard pressed to not put protections in place.”

One final pension announcement in the Autumn Statement which is less likely to be challenged by another political party is the decision to consult on giving employees the legal right to request that a new employer pays their pension contributions into their existing pension scheme. This will remove the complexities of having multiple pension pots and help simplify retirement saving.

Death taxes

Following the Autumn Statement, HMRC published further details on how the new pensions regime will work from April 2024. This included clarification on how your pensions are taxed when you die. Currently, if you die before you turn 75, your pension funds can be paid to your beneficiaries as tax free drawdown income providing the benefits are settled within 2 years of the scheme becoming aware of you death. A previous policy document suggested this will change when the pension lifetime allowance is abolished, but HMRC has now confirmed the tax treatment will remain intact. However, lump sums may still be subject to tax on the beneficiary where the new Lump Sum Death Benefit Allowance (LSBDA) is exceeded.

Despite rumours that the Autumn Statement would reduce inheritance tax, or even abolish it altogether, there were no announcements relating to this controversial tax on the value of assets owned when you die. It remains to be seen whether this will feature in the 2024 Spring Budget.

More ISA flexibility

While not mentioned in the Chancellor’s speech, the Autumn Statement included some adjustments to ISA rules. Currently it is only possible to invest in one ISA of each type per tax year. This restriction will be removed from April 2024, meaning investors can subscribe to multiple cash or stocks and shares ISAs without fear of losing tax free status on their savings.

From April 2024 it will also be possible to do partial transfers of all ISA subscriptions. Currently this is only possible on previous years subscriptions, but this rule is being changed to allow partial transfers to also apply on current years subscriptions, further simplifying the ISA process.

Annual contribution limits – £20,000 for adult ISAs, £9,000 for Junior ISAs, £4,000 for Lifetime ISAs – are unchanged. But a previous quirk allowing 16 and 17 year-olds to invest in an adult Cash ISA and a Junior ISA, thus giving them a £29,000 annual allowance, has been removed. From April the age at which an adult ISA can be opened will be fixed at 18 across all ISA types.

EIS and VCT extensions

The Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) can be effectively utilised as tax planning tools while investing in small companies. This includes potential income tax relief up to 30and CGT savings for VCTs and EIS, with further CGT tax benefits and IHT exemptions for EIS. These schemes were originally scheduled to end in 2025, but in the Autumn Statement it was announced the sunset clauses will be extended to 2035, which is welcome news for investors.

“Despite not receiving much attention in the budget, the extension of these sunset clauses is important,” says Sleeman. “For clients they are a great complementary tool if they can bear the additional level of risk that comes with them. For higher-earners, who are tapered in the amount they can put into their pension and have maxed out their ISAs, EIS and VCTs are often the only tools they can use to get tax relief on investments. If these schemes would have ended in 2025 it would have seen higher-earners severely restricted from accessing such tax reliefs.”

Supply-side policies

Many of the policies in the Autumn Statement focused on supply-side reforms to stimulate business growth. These include a freeze to the small business multiplier for a fourth consecutive year (at 49.9p), an extension of the 75% business rates relief for hospitality, retail and leisure properties, and tougher regulation on larger companies that pay small businesses late. The Chancellor called the plans the “biggest ever boost for business investment in modern times”.

To encourage more people to work, meanwhile, the National Living Wage received an extra boost, having increased by 12% earlier this year to £10.42 an hour. It will increase by a further 9.8% to £11.44 from April 2024 and for the first time this amount will also be applied to workers aged 21 and 22. The National Minimum Wage for those aged 18-20 will increase by 14.8% to £8.60 an hour, while for 16 and 17-year olds and apprentices it will rise 21.2% to £6.40 an hour.

In what the Chancellor dubbed the “largest business tax cut in modern British history”, he also announced that ‘Full Expensing’ will be made permanent. This tax break allows companies to claim 100% capital allowances on qualifying investments in IT equipment, plant and machinery.

Peter Montague"Whatever way you look at it, we are still amidst one of the heaviest tax burdens ever seen. The cost of living is still high, and most people are paying more tax than ever before. Meanwhile it's fair to say that since the start of 2022 it's been a very rough time for portfolios. 2023 has been another difficult year," says Peter Montague, Chartered Financial Planner at Ascot Lloyd.

"Clients want to see more positivity for the future and with inflation falling, interest rates looking to have peaked and the government now committing to stimulating economic growth and cutting taxes, there are reasons to be optimistic. But with challenges still ahead and elections in both the UK and US next year, that optimism should be tinged with caution. As always a financial adviser will help you create the best plan for your individual circumstances and objectives."

Read the full Autumn Statement 2023 here

If you’d like to speak with one of the trusted Independent Financial Advisers at Ascot Lloyd about how any of the announcements in the Autumn Statement will impact you, and how to build the right plan to meet your retirement goals, request a call back.