Autumn Statement November 2023

Today’s post takes a look at the usual speculation in advance of the November 2023 Autumn Statement and at what actually happened.

Autumn Statement November 2023

Yet another Tory budget hoves into view – perhaps the last or the next-to-last of this parliament.

• You might think that would concentrate the Chancellor’s mind on pulling some election-winning rabbits out of the had.

For me, that would mean some truly Conservative policies (low tax, low spending).

• But as I’ve noted before, this hasn’t been the case over the last nine years (with the honourable exception of Jeremy Hunt’s abolition of the LTA back in March).

And as Liz Truss found out last year, unfunded tax cuts are not well-received.

The other issue is inflation, which has just fallen to below the 5% pa target (for 2023) announced by PM Rishi Sunak.

• Hunt is known to favour tax cuts with a lower impact on inflation.

The Chancellor also has to choose between policies that play well in the northern “Red Wall” and those designed to shore up support in Tory heartlands – it all depends how pessimistic the opinion pols are making him and the PM feel.

• It might be the case that Hunt has no tax headroom to play with, or it could be that he wants to keep his powder dry for one last shot in the spring.

Speculation

Remember that a lot of speculation relevant to an investment blog is produced by investment firms and accountants in order to provoke action (overreaction?) from clients and investors in advance of draconian measures that rarely appear.

Notes in blue indicate what actually happened, which for most Budgets is a lot less than was predicted.

Income tax and NIC

There was a late flurry of speculation on firstly a cut in basic rate income tax (surely inflationary?) and finally on a 1p cut in NIC (which is the same other than it excludes non-workers, including pensioners).

• An 11% NIC rate is not my idea of a low-tax economy and the change must be inflationary.

Perhaps any cut will be deferred until the next tax year, by which time it will be hoped that inflation is on the way out.

I would prefer the tax thresholds to be unfrozen, but this seems unlikely.

• We got a 2% cut in NICs in the end (and more cuts to self-employed NICs) – not much use to a retiree like me.

Cost of living

No “help” had been mooted, and many suspected that benefits would not rise in line with inflation.

• Compulsory work placements for benefits claimants have also been mooted.

On the other hand, yet another inflation-busting increase in the minimum wage (to £11.44 per hour) was pre-announced.

• How this squares with a shortage of labour baffles me, but perhaps the idea is to increase the gap between benefits and entry-level jobs.

It also seems at odds with the idea of high-interest rates to crush inflation.

Benefits are up by 6.5%, more than inflation, but the work placements were confirmed.

Capital gains and Inheritance tax, wealth taxes

Early on, there was a lot of speculation that IHT could be cut (either by reducing the rate or increasing the allowance) or even abolished altogether.

• I’m in the process of liquidating an AIM portfolio designed to avoid IHT, so this possibility has focused my mind (AIM stocks might be expected to fall should IHT be removed).

Removing IHT won’t be cheap, though – Quilter has calculated that simply raising the free band to £500K (and removing the residence nil band) would cost £2 bn a year.

• Cutting the rate of IHT from 40% to 30% would cost £2.6 bn pa, and cutting it to 20% would cost more than £5 bn pa.

These sound like big numbers, but IHT accounts for less than 1% of the total tax raise.

• IHT was not touched.

Corporate tax

It was expected that the temporary loophole allowing 100% of investment to be set off against profits would be made permanent.

• This was confirmed

Investments and pensions

The main risk here was to the triple lock on the state pension, now that the mechanism requires a rise above the current level of inflation (8.5% vs 4.7%).

• Of course, when inflation was rising, the wage increase figure was manipulated in order to reduce the annual increase in the pension.

The state pension gets a lot of media attention but remains very low as a percentage of wages in comparison to other rich countries, and indeed is much lower than the minimum wage.

• Alternatives include pegging the state pension to a fixed percentage of average earnings (presumably quite a low one).

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There has also been a lot of talk about ISAs, with two contradictory ideas to the fore:

1. Simplify ISAs so that one type could hold all assets (including cash – which it already can), and a save could contribute to more than one each year.
2. Create a separate “British ISA” to encourage £5K pa of investment into the UK stock market.

The second plan would presumably require some restrictions on which listings qualify, otherwise, people would just use ETFs and investment trusts.

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A late runner in the speculative races was the idea that workplace pensions would be transformed into a “pot for life”.

• When an employee changes pensions, they could instruct their new company to pay into their existing pension, as is currently the case in Australia.

This would avoid the “small pot” problem where people at the start of their career build up several pots of a few thousand pounds each.

• It sounds like a good idea to me, but as you might expect, industry insiders worry that individuals might make bad choices about which pension to use.

There is a risk that the market could fragment, pushing up costs, but in practice, most people are likely to use the top two or three providers.

• The worry for the industry is that these could be fintech startups, rather than 200-year-old insurance companies.

There’s also potentially a problem for very small firms having to make subs into multiple pension schemes, but some kind of industry clearing house could resolve this.

• “Pot follows member” is the alternative solution to the small pot problem, but I know which option I would prefer if I were still working.

The Pot for Life was announced (as a consultation only), and the Triple Lock on the State Pension was preserved.

• There was no mention of ISAs in the speech but the document says that Long Term funds will be allowed inside.

Something else not mentioned in the speech was the extension of the existing sunset clauses for EIS and VCT from 2025 to April 2035.

• Abolition of the clauses would have been better news, but Labour claims to support the schemes so they should survive in some form.

Property

There was some discussion that stamp duty might be cut.

• That would be very welcome for me, as I probably have two purchases left in me, and they would each be very expensive under the existing regime.

It might not be popular with everyone, as no doubt it would be argued that lower stamp duty means a higher asking price.

There were also reports that the government’s mortgage guarantee scheme would be extended for another year.

• The scheme encourages lending on properties up to £600K by underwriting a portion of the debt.

Stamp Duty was not touched, and I didn’t hear anything about the mortgage guarantee scheme.

Sin taxes

Alcohol duty was frozen.

Surprises

Nothing significant this time.

Conclusions

Another damp squib for me, with little in the way of tax cuts or reduced spending.

• The good news was the retention of the triple lock and the extension of the VCT regime.

Until next time.