Everything You Need to Know About the 2023 Autumn Statement

Jeremy Hunt delivered the Autumn Budget yesterday against a backdrop of a cost of living crisis and a looming general election. The economic situation and outlook remain challenging and government finances relatively tight. Despite inflation falling sharply, 4.6% annual price rises remain more than double the Bank of England target with the cumulative effect over the past few years causing most people to feel significantly poorer. Taxes are also at their highest rate in the post-war era. Furthermore, interest rates have continued to rise, putting additional strain on many households and businesses and the public finances continue to be under pressure following the pandemic spending and lacklustre economic growth.

Despite these challenges, the Chancellor remained relatively bullish, announcing several major tax cuts and new initiatives. In contrast to many headlines, official data show that taxes will continue to rise due to ‘fiscal drag’ following the measures outlined in the statement. With high inflation and wage rises, many more people are now paying Income Tax and National Insurance and the number of ‘higher rate’ and ‘additional rate’ taxpayers has ballooned – despite many people seeing real wage cuts (due to high inflation) over recent years.

With a general election likely to be called next year, the Chancellor (and Prime Minster) were keen to try to paint an optimistic picture and to announce some tax cuts where possible. However, there was little room for manoeuvre with the public finances tight and economic forecasts looking gloomy. The Office for Budget Responsibility (OBR) downgraded its economic growth forecast for the coming years and warned that some departmental budgets will be cut in the years ahead.

Here are some of the key points from the Autumn Statement 2023:

Pensions

• There was confirmation that the ‘Lifetime Allowance’ will be scrapped from April meaning there will be no additional tax charge on large pension pots. However, there are new rules on tax-free lump sum maximums and death benefits so care must be taken when pension planning.
• A consultation on ‘Pot for Life’ was announced. This could mean employees having a single ‘Workplace Pension’ that all employers would pay into. This would provide much-needed simplification for many employees but will likely mean additional costs and administration for employers.
• The State Pension will increase by 8.5% from April, in line with the ‘triple lock’ promise. This will take the new State Pension to £11,542 per year. The old State Pension and some other pension benefits will receive a similar uplift.
• A number of measures dubbed the ‘Mansion House reforms’ were outlined, with the aim of incentivising pension funds to invest in assets to boost investment and growth in ‘the UK’s most promising businesses’.

ISAs

• There were no changes to the maximum annual amount that can be contributed to ISAs. This remains at £20,000 for ISAs and £9,000 for Junior ISAs This means an effective reduction in the annual limit after accounting for inflation.
• The ‘one ISA of each type per tax year’ restriction will be removed from April. This simplification will mean investors will be able to subscribe to multiple cash or stocks and shares ISAs in a year.
• Other tweaks to ISA rules will mean it is possible to do partial transfers from current year ISA payments, hold so-called ‘fractional shares’ and the age rules will be harmonised so that all (non-Junior ISA) can only be opened from the age of 18.

Taxation

• Despite a lot of speculation prior to the Autumn Statement, there were no changes announced to Inheritance Tax.
• There were no additional changes to the Capital Gains Tax rates or allowances. But remember that from April, the annual exemption allowance will be reduced to £3,000.
• Despite the rumours, there were no changes to Income Tax announced. With high inflation and wage growth, ‘fiscal drag’ will mean many people paying significantly more Income Tax.
• Big changes to National Insurance were announced. ‘Class 1’ contributions (paid by employees on earnings) will be reduced from 12% to 10% from January. ‘Class 2’ contributions (paid by the self-employed) will be scrapped for those with annual profits over £6,725. There will also be a 1% reduction in ‘Class 4’ contributions.
• Companies will continue to benefit from the current ‘full expensing’ tax break which will be made permanent. This broadly allows investment expenditure to be fully deductible against Corporation Tax immediately.
• The 75% business rates discount for retail, hospitality and leisure firms has been extended for another year in a welcome boost for high street shops, pubs, and other businesses.

Economy

• The OBR downgraded its economic growth forecasts (although these are still more optimistic than the Bank of England forecasts). They now predict the UK economy to grow by 0.6% this year, 0.7% in 2024, 1.4% in 2025, 1.9% in 2026, 2% in 2027 and 1.7% in 2028.
• Inflation is forecast to fall to 2.8% next year before reaching the Bank of England’s 2% target rate in 2025.
• Median living standards in the UK are not expected to return to pre-pandemic levels until 2027/28.
• Higher inflation means the real value of departmental budgets will be £19bn lower by 2027/28 compared with the forecasts in March.

Other Announcements

• The ‘National Living Wage’ will rise by 9.8% to £11.44 an hour from April. The new rate will be expanded to include 21 and 22-year-olds for the first time.
• Most state benefits will rise by 6.7% in April. Local Housing Allowance will also be increased, providing 1.6 million households with an average of £800 of support next year.
• Plans were announced that will mean benefit claimants deemed able to work who refuse to seek employment will lose access to their benefits and extras like free prescriptions. Additional funding was also announced to help those unemployed for over a year and those with health conditions find jobs.
• Alcohol and fuel duty will be frozen.
• Tobacco duty will be increased by 2% and rolling tobacco by 12% from April.
• New funding was announced to attract investment to strategic manufacturing sectors, including green energy, aerospace, life sciences and artificial intelligence.
• Additional incentives for ‘investment zones’ and ‘freeports’ will be extended from five to ten years with five new ‘investment zones’ announced.

If you would like to talk about any of the issues in this article or need more general help with your finances, please get in touch with us.

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