Autumn Budget Statement 2023

Jeremy Hunt has released his Autumn Budget Statement, an annual event in which the Chancellor of the Exchequer outlines the government's fiscal plans for the upcoming year. It is a highly anticipated event, as it sets out important policies and measures that will impact individuals, businesses, and the overall economy. This summary will provide an overview of the key announcements, including any changes in tax rates and their implications for various sectors of the economy.

Tax Rates

Virtually all tax rates and allowances remain unchanged, with many stated to be frozen until April 2028, which in itself could be seen as a tax hike given the rate of inflation at the moment.

The exceptions are Capital Gains Tax where the individual annual exempt amount is halved to £6,000 for tax year 2023/24 as expected, and then again to £3,000 for tax year 2024/25.

For trusts, the CGT annual exempt amount will be £3,000 in 2023/24 and then £1,500 in 2024/25.

The annual Dividend allowance is also dropping to £1,000 in 2023/24 and then £500 in 2024/25.

National Insurance

The main rate of Class 1 employee NICs will be cut from 12% to 10% from 6 January 2024. This will provide 27 million working people with a prompt increase in net pay, with the average worker on £35,400 receiving a tax cut of over £450.

For the self-employed, the first of two cuts will see the main rate of Class 4 self-employed NICs reduce from 9% to 8% from 6 April 2024.

The self-employed currently must pay two separate NICs charges to access contributory benefits. The Government will provide the second cut for those earning £6,725 and above by abolishing Class 2 NICs from 6 April 2024 whilst maintaining access to contributory benefits, including State Pension.

For those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension, will continue to be able to do so at the current rate of £3.45 per week (was due to increase to £3.70 but will not now).

Individual Savings Account

The annual ISA allowances remain the same however they are attempting to simplify the current terms in which ISAs can be used.

The one ISA of each type rule will be abolished – a saver will now be allowed to subscribe to multiple ISAs of the same type every year from April 2024.

The full transfer of current year subscriptions rule will also be abolished – a saver can now partially transfer current year subscriptions in-year between providers from April 2024.

Adult ISAs will be harmonised so that they are available to age 18 and over.

Permitted investments within an Innovative Finance ISA will be expanded to include Long-Term Asset Funds and open-ended property funds with extended notice periods from April 2024.

ISA reporting will be digitalised enabling the development of tools to support savers and the requirement to reapply for an existing ISA annually (where no subscriptions made) will be removed from April 2024.

Pensions

Abolition of the Lifetime Allowance

The Government confirmed the abolition of the Lifetime Allowance will still go ahead from 6 April 2024. The Finance Bill will be introduced to parliament shortly which will provide further details.

Importantly, on death before age 75 beneficiary drawdown plans and beneficiary annuities will continue to be excluded from income tax, maintaining the current treatment. This is positive news following a suggestion in the Spring that this could have been changed.

The maximum pension commencement lump sum for those without protections will be kept at 25% of the fund up to a maximum of £268,275 (25% of the lifetime allowance of £1,073,100). The figure of £268,275 will be frozen thereafter.

Pot for Life

Currently, eligible new employees must be automatically enrolled into a pension scheme of their employer’s choosing. The Government has announced a ‘pot for life’ proposal that will change this by ensuring the pension pot can move with the employee from job to job, which will help resolve the proliferation of small pots caused by the current system.

Investment for growth through pension funds

The Chancellor confirmed his plans to use pension funds to invest for growth, as outlined in his Mansion House reforms in the Summer. The Government has an agenda to increase the investment in alternative assets like start-ups, infrastructure, private equity, as well as longer-term investments that are typically illiquid in nature (referred to as ‘productive finance’).

Defined benefit pension proposals

The DWP will be launching a consultation this winter for the implementation of a mechanism for surpluses in Defined Benefit schemes to be repaid. This is hoped to encourage defined benefit pension schemes to invest for growth, building up larger surpluses, and sharing those with the employer.

State Pension

It was confirmed that the triple lock on State Pensions would be maintained, guaranteeing the 8.5% earnings-based increase for next April. The increase will also apply to Pension Credit.

This means that the full New State Pension will increase to £221.20 a week from April. We expect the Basic State Pension to increase to £169.50 a week (single person) or £271.05 a week (married couples and civil partners).

Welfare

National living wage – this will be raised from £10.42 per hour to £11.44 from April 2024. It will apply to those aged 21 or over, after an extension of the rate to 21 and 22 year olds.

The Local Housing Allowance (the way in which financial help is calculated for private renters) will be unfrozen and increased.

An increase to Universal Credit and other state benefits of 6.7% i.e. the September rate of inflation and not the lower figure in October as some had predicted.

Benefit claimants will be required to undertake a work search program after 18 months of not being employed with anyone failing to engage in this process having their benefits cut after 6 months as ceasing to be entitled to other extras such as free prescriptions.

For those on long term sick or who are disabled, the Fit Note process will be reformed to support more people back into employment. In particular, the Work Capability assessment will be changed to take account of homeworking now being an option. More funding for mental health treatment will also be provided.

Business

‘Full expensing’ will be made permanent which broadly allows investment expenditure to be fully deductible immediately.

The current 75% business rates relief for eligible retail, hospitality and leisure properties will be extended for one year in 2024/25 and freezing the small business rates multiplier for business in 2024/25.

Alcohol

There will be a freeze on alcohol duties until 1 August 2024 and delays the annual uprating decision to the 2024 Spring Budget.

This post is the opinion of Velarium Wealth and contains our understanding of the latest Government Budget Statement as of 22nd November 2023 that we feel is relevant at the current time. This document has been prepared for general information only and is not guaranteed to be complete or accurate. It does not contain all of the information which an investor may require in order to make an investment decision.