Chancellor Jeremy Hunt took centre stage today in the House of Commons, unveiling the Autumn Statement for 2023.
In a bid to mend the nation's finances, Hunt presented a plan involving tax rises and spending cuts worth billions of pounds.
The Chancellor declared that the UK economy is “back on track”. We take a closer look at some of the key announcements, including the impact to individuals, businesses, and the economic landscape.
Inflation and economic outlook
One prominent feature of the Autumn Statement was the optimistic outlook on inflation. The Office for Budget Responsibility (OBR) predicts a decline, from 11.1% (when Hunt and Sunak took office), to 2.8% by the end of 2024.
Hunt is confident that this trend will continue, with a 2% inflation target by 2025, announcing that he “will not take risks with inflation.”
The OBR forecasts a gradual rise in economic growth, with an expected 0.6% growth this year, 0.7% next year, eventually reaching 1.4% in 2025. The minimum wage hike to £11.44 per hour from April 2024 reflects a commitment to improving living standards and addressing income disparities.
Hunt announced a 2% cut (from 12% to 10%) to National Insurance, which will affect 27 million workers from 6 January 2024. The reduction is expected to save an average worker around £450 each year.
However, not all taxes received a favourable adjustment. Hunt confirmed that personal tax thresholds will remain frozen until April 2028, instead of April 2026. Additionally, tax-free allowances for dividend and capital gains are set to be cut in the coming years.
Speculations about Hunt contemplating a reduction of Inheritance Tax (IHT) from 40% to 20% didn’t materialise in today’s announcement. It’s possible that any modifications or reforms related to IHT will be saved for the Spring Budget 2024.
“Pot for life” pension reforms
The Chancellor's commitment to pensioners was evident. The state pension was increased by 8.5%, in line with the triple-lock commitment. This will come as a relief to pensioners struggling with the rising cost of living.
The triple-lock is a commitment by the government to increase the state pension every year by the highest of three factors: inflation, average earnings, or a 2.5% minimum increase. This means pensioners receive a yearly increase in their state pension, ensuring it keeps up with rising prices.
Pension savers will also have the right to request that employers contribute to a “pot for life” retirement fund of their choice. This grants pension savers the “legal right to require a new employer to pay pension contributions into their existing pension”.
Business and innovation
The Autumn Statement introduced several measures to support businesses, including a permanent extension of the £11 billion-a-year tax break for business investments. This tax break, previously set to expire in 2026, aims to boost business investment and stimulate economic growth by writing off the cost of plant and machinery items (such as tools, computers, and vans) against taxable profits.
An additional £500 million will be invested in the next two years to establish innovation centres. The simplified tax relief for research and development is designed to incentivise business innovation.
Commenting on today’s announcement, Simon Merchant, Co-Founder and CEO of Flagstone, said:
“What UK savers urgently needed to see - and didn't - in the Autumn Statement were a bit more cautious optimism about our future personal finances and a harder commitment to tackling the issue we're seeing of more people paying higher taxes on their savings on account of interest rates rising while tax thresholds stay put.
“Specifically, we need to see the Treasury raise the threshold on the Personal Savings Allowance (PSA) - for the first time since its introduction nearly eight years ago - to keep more hardworking savers from paying taxes on their hard-fought savings.
“As a nation we don't save enough as it is, and a huge proportion of what is saved languishes in uncompetitive accounts earning customers next to nothing. This puts the future financial wellbeing and retirements of millions of people at risk. For those that are fortunate enough to have money left to save every month, we need to see greater motivation and encouragement at a state level to put that cash to work.
“Increasing the PSA would encourage more people to better monitor their savings and make their money work harder for them by spreading them across competitive savings accounts in ways that enrich rather than impede the savings experience.”
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