Following the release of today’s autumn budget statement from Chancellor Jeremy Hunt, The Openwork Partnership is providing a snapshot analysis of the key highlights that may impact our customers as well as the wider UK economy.
Chancellor Hunt’s address, which commenced just after midday on 22 November, provided a snapshot of the economy, where inflation has dropped to 4.6%, as well as positive inflation news, as well as unveiling changes to taxes and spending.
As we navigate through the aftermath of the autumn budget, The Openwork Partnership stands ready to break down the implications for our readers.
Autumn Statement 2023:Here is a quick summary of the main talking points from this autumn budget statement, before we explore it in more detail:
- Pensions to rise by 8.5%, reaching £221.20 weekly in April, maintaining the triple lock.
- Consultations on granting savers the right to request new employers contribute to existing pension pots.
- Abolishment of Class 2 National Insurance, saving the average self-employed person £192 annually.
- 8% cut in Class 4 National Insurance.
- Universal Credit and other benefits to rise by 6.7% from April 2023.
- National Insurance to be reduced by 2 percentage points from January.
- Alcohol duty is frozen until 1 August; tobacco duty is to increase.
- £450m allocated for a local authority housing fund, aiming to deliver 2,400 new homes.
- Business rates are frozen for small businesses, with a one-year 75% discount for retail, hospital, and leisure companies.
- National living wage to increase by 9.8% to £11.44 per hour.
- Permanent implementation of "full expensing" tax breaks for businesses.
- Introduction of mandatory work placements for individuals on benefits for over 18 months.
Triple Rate Pension Lock Updates: Ensuring Stability
Chancellor Hunt reaffirmed his party’s commitment to the triple lock mechanism, ensuring an annual state pension increase by the highest of three factors: inflation, average earnings growth, or a minimum of 2.5%. In a historic move set for April 2024, the state pension will witness an unprecedented 8.5% increase, reaching an impressive £221.20 per week.
Additionally, a pioneering initiative is being explored to empower employees in directing their pension contributions and granting autonomy over their funds.
Tax Cuts For Workers
Clearly the landmark announcement of the day, the government outlined an overhaul of the National Insurance (NI) framework.
Effective 6th January, a 2% reduction in Employee National Insurance contributions, from 12% to 10%, is set to deliver significant savings, with the average worker benefiting by £450. This move extends its impact to over 29 million employees nationwide.
Simultaneously, self-employed individuals witness positive shifts with Class 4 National Insurance Contributions (NICs) decreasing from 9% to 8%, whilst simultaneously, the government abolished Class 2 National Insurance entirely, which is expected to save the average self-employed person £192 annually.
Boost for Low-Paid Workers and Cost of Living Support
In a move to address financial challenges faced by low-paid workers and enhance support for the most vulnerable households, the UK government has introduced significant changes to the National Living Wage and implemented robust measures to alleviate the cost of living burden.
- National Living Wage Surge: The National Living Wage is set to undergo a substantial 9.8% increase, soaring to £11.44 from 1st April 2024. This move underscores the government's commitment to ensuring fair remuneration and improving the financial well-being of low-paid workers.
- Age Threshold Adjustment: In an inclusive step, the age threshold for the National Living Wage will be lowered from 23 to 21 years old. This broadens the scope of beneficiaries, addressing the financial challenges faced by younger workers.
The combined effect of these changes is estimated to benefit over 2.7 million low-paid workers across various sectors, providing tangible relief and contributing to a more equitable employment landscape.
In tandem with these wage enhancements, the government is actively addressing the cost of living concerns faced by the lowest-income households, with £104 billion in support.
- Local Housing Allowance: To curb increasing costs, the local housing allowance will be raised to the 30th percentile of local market rents.
- Cost of Living Aid Boost: A substantial 6.7% increase in the cost of living aid, amounting to £470 per month, will be extended to the lowest-income households. This initiative is set to benefit 1.6 million households, receiving a collective £104 billion in cost of living aid, with an average support of £3700 per household.
Furthermore, a final household boost came in the form of 30 hours of free child care for working parents with children aged between one and two to still be rolled out in April.
Government Unveils Comprehensive Back-to-Work Initiative
In a bid to bolster employment prospects and support individuals returning to work, Chancellor Hunt announced a holistic welfare update. With a substantial investment of over £2.5 billion, the Back to Work Plan takes centre stage, aiming to facilitate job finding and retention:
- Fit Note Process Enhancement: Reforms to the Fit Note process will streamline support for individuals re-entering the workforce after illness so that they do not struggle to keep payments.
- Universal Support Programme Expansion: This is slated for expansion, with a specific focus on matching individuals with disabilities to suitable job opportunities, so that realistic and consistent income is achieved.
- Work Capability Assessment Reforms: The Work Capability Assessment is set to undergo reforms, ensuring a more robust and supportive framework for those who need it.
- Expanded Jobcentre Support: The commitment to providing additional Jobcentre Support underscored the government's dedication to creating an inclusive and supportive environment for individuals navigating the journey back to employment.
Stamp Duty Change: Green Improvements Rebate
There was widespread speculation that Chancellor Jeremy Hunt could unveil plans today to cut stamp duty in a fresh effort to boost activity levels in the housing market. Cutting or reducing the tax could have injected some momentum into the housing market, especially as far as first-time purchasers are concerned.
However, no updates were given here, with green incentives in general not present in this year's autumn statement.
ISA Updates: A Revolutionary Shift in Savings Landscape
In a groundbreaking move, Chancellor Hunt unveiled a series of transformative changes to Individual Savings Accounts (ISAs), aimed at simplifying the system and providing individuals with greater flexibility in managing their savings portfolios.
- Multiple ISA Subscriptions: Commencing April 2024, the government is set to revolutionise ISA subscriptions by permitting individuals to subscribe to multiple ISAs of the same type annually. This strategic move aims to empower savers with diversified investment options tailored to their unique financial goals.
- Partial Transfers Between Providers: Another pivotal change is the introduction of partial transfers of ISA funds between providers within the same year, beginning in April 2024. This move ensures that individuals have the flexibility to optimise their investments by seamlessly moving funds where they see fit.
- Streamlining Dormant ISA Processes: In a bid to reduce administrative hurdles, the requirement to reapply for an existing dormant ISA will be eliminated from April 2024, streamlining the process and enhancing the overall efficiency of ISA management.
- Innovative Finance ISA Expansion: The Innovative Finance ISA is set to undergo a significant expansion, incorporating Long-Term Asset Funds and open-ended property funds with extended notice periods as permitted investments from April 2024. This expansion broadens the scope of investment opportunities within ISAs, aligning with evolving market trends.
- Fractional Shares Contracts: Chancellor Hunt expressed his intention to permit certain fractional shares contracts as eligible ISA investments, marking a forward-looking approach to embrace diverse investment instruments. Stakeholder engagement will play a crucial role in shaping the implementation of this innovative strategy.
- Digital Transformation: An ambitious step towards modernisation includes the digitalisation of the ISA reporting system. This move paves the way for the development of digital tools that will empower investors with enhanced insights and seamless management capabilities.
- Harmonisation of ISA Age Limits: Effective April 2024, the government will harmonise the account opening age for adult ISAs to 18, aligning with the age of financial independence. This harmonisation ensures consistency and accessibility for individuals embarking on their savings journey.
- Freezing Limits: The government remains steadfast in maintaining the current limits for Individual Savings Accounts (£20,000), Junior Individual Savings Accounts (£9,000), Lifetime Individual Savings Accounts (£4,000 excluding government bonus), and Child Trust Funds (£9,000) for the fiscal year 2024-25.
This paradigm shift in ISA regulations signifies a commitment to fostering a more dynamic and accessible savings environment for individuals across the nation, heralding a new era in personal finance.
Empowering British Businesses
In a decisive move to bolster business investment and foster sustainable economic growth, the UK government has introduced a comprehensive plan with several key measures:
- Permanent Full Expensing: Making full expensing of plant and machinery investment permanent, a significant initiative valued at over £10 billion annually.
- Enhanced R&D Tax Reliefs: Simplifying and improving R&D tax reliefs, injecting a notable £280 million yearly into research and development.
- Infrastructure Investment: Removing barriers to investment in critical infrastructure, providing a conducive environment for strategic development.
- Business Rates Support: Committing £4.3 billion of business rates support over the next five years, offering a vital financial boost to enterprises.
- Pensions Market Reforms: Initiating reforms in the pensions market to unlock investment into high-growth sectors, fostering innovation and development.
- Targeted Sector Support: Announcing targeted support for digital technology, green industries, life sciences, advanced manufacturing, and creative industries, reinforcing key sectors.
- Strategic Manufacturing Investment: Investing £4.5 billion to unlock investment in strategic manufacturing sectors, a crucial step towards promoting economic resilience.
- Investment Zones Expansion: Confirming the expansion of investment zones in Greater Manchester, the West Midlands, and the East Midlands, signalling strategic development.
- Flexible Funding Boost: Doubling the flexible funding envelope for each investment zone from £80 million to £160 million, ensuring increased financial support.
These substantial measures are projected to contribute to a remarkable business investment surge, anticipated to reach around £20 billion per year in a decade.
Reducing National Debt
Starting at a national level, Chancellor Hunt was keen to outline its plan aimed at reducing debt and borrowing.
Borrowing is expected to be lower this year and the next, with an average reduction over the forecast period compared to the OBR's March projection. Notably, underlying debt as a percentage of GDP is set to decrease by an average of 2.1 percentage points across the forecast, showcasing a positive trajectory.
Crucially, the government remains on track to meet its debt and borrowing fiscal rules, boasting increased headroom against both rules compared to the spring. This fiscal responsibility is complemented by substantial allocations for public services, including up to £14.1 billion for the NHS and adult social care, along with an additional £2 billion for schools in both 2023-24 and 2024-25. The commitment to increasing total departmental spending by £85 billion in real terms by 2028-29 emphasises the government's dedication to enhancing public services.
Moreover, the government's focus on supporting households with the lowest incomes through tax, welfare, and public spending decisions since Autumn Statement 2022 is noteworthy. The introduction of the largest package of measures to tackle tax non-compliance since 2016, forecasted to generate an additional £5 billion in tax revenue over the next five years, reflects an effort to enhance fiscal sustainability.
The ongoing drive to reimagine public service delivery through the Public Sector Productivity Programme underlines the government's dedication to ensuring efficiency and effectiveness in the delivery of public services. These collective efforts form a comprehensive fiscal strategy that prioritises responsible economic management, targeted public investment, and measures to enhance revenue generation.
Around the Ground: What You Might Have Missed
Some other tidbits of information from today's statement that may have been missed:
- Apprenticeship Investment: £50 million allocated over the next two years to boost the number of apprentices in engineering and other key growth sectors, emphasizing investment in skills development.
- AI Powerhouse Initiative: £500 million expenditure over the next two years to position the UK as an "AI powerhouse," reflecting a commitment to advancing artificial intelligence capabilities.
- Inheritance Tax Uncertainty: Speculation around inheritance tax cuts remains uncertain, indicating ongoing consideration and potential future developments.
- Small Business Support: Small business multiplier frozen for a year, along with a 75% business rates discount for retail, hospital, and leisure companies. The discount on rates up to £110,000 has proven beneficial for shops, saving them an average of £20,000.
As we draw the curtain on this year’s autumn statement, the financial landscape stands at the crossroads of change for individual taxpayers, as well as pensioners. To delve deeper into the official details and gain a firsthand understanding, we encourage you to explore the government's official release of the autumn statement here.