On 22nd November, the chancellor, Jeremy Hunt, presented his autumn statement alongside the latest forecasts from the independent Office for Budget Responsibility. We asked Callum Donoghue from our Financial Planning Team to pick out some of the main points.
The headline announcement by the Chancellor was a cut to employee National Insurance (NI) from 12% to 10%, which will result in lower tax bills for up to 27 million workers. Among the other announcements were changes to benefits programs, a freeze on alcohol duty, additional business tax breaks, investment in Artificial Intelligence (AI) and manufacturing, and a rise in the minimum wage. When it comes to the areas of the budgets most likely to affect our clients, though, there wasn't too much to tell.
Downgraded Forecasts
The independent Office for Budget Responsibility downgraded its growth forecasts and upped its inflation projections, which highlight the struggles facing the country as household finances remain stretched by a prolonged period of high inflation and sluggish growth. Headline inflation came in at an annual 4.6% in October, its lowest reading in two years and significantly lower than the 11.1% rate when Hunt took over the country’s finances in October 2022. However, although these inflation figures are far more promising, it remains well above the Bank of England’s 2% target and continues to weigh on household finances.
What this does mean though, is that the hikes in interest rates are doing exactly what they were intended to do, bring down inflation. With inflation falling, it is reasonable to assume peak interest rates are not that far away. When market expectations change to interest rates being held or cut going forwards, this could provide the foundation for a recovery phase in markets.
Pensions
Pension triple lock - The Government will maintain the “triple lock”. From April 2024, the full new state pension will increase by 8.5% to £11,500 per year, an increase of over £900. This will be welcome news for many of our clients, especially those who have felt the pinch from the rising cost of living we have experienced for the last two years.
The government will legislate in the Autumn Finance Bill 2023 to remove the pension lifetime allowance. This was originally announced in the Budget in April 2023, but they have now confirmed the LTA will be completely scrapped from 6 April 2024. If this change affects you and any changes to your plans are required, your adviser will discuss this with you at your next Progress Meeting.
Mortgages
The Mortgage Guarantee Scheme, which supports the availability of 95% loan-to-value mortgage products, will be extended for an additional 18 months until the end of June 2025. This is good news for first time buyers who have struggled to save up large deposits due to the recent rises in rent and the cost of living.
EIS and VCT
The sunset clauses for EIS and VCT income tax relief will be extended to April 2035. They previously limited the tax relief to shares issued before 6 April 2025. This extension was to be expected due to the success and large take up of these types of investments but our clients will see no immediate change to their current investments or plans for future investments this area.
Business Investment
The Chancellor made much of his proposal to extend business tax allowance. At the Spring Budget 2023, the government replaced the super deduction regime with ‘full expensing’ for 3 years from 1st April 2023, allowing businesses to write off the full cost of qualifying plant and machinery investment against their taxable profits. The government is now making this change permanent with a 100% first year allowance for main rate assets and 50% first year allowance for special rate (including long life) assets.
There were a number of other changes to business taxation, including to research & development schemes, business rates, and an extension of the Investment Zones Programme. If you are in business and want to know how these changes might affect you, our team at CHAS will be delighted to assist you.
Individual guidance
As always, we will be raising any pertinent issues with our clients at their next Progress Meeting. If you would like more detail on the Chancellor's announcements you can find it here.
If you don't have a current relationship with us and would like to know more about how we work with our clients, why not get in touch for an initial chat?