Autumn Statement 2023

National Insurance

The headline announcement from today’s Autumn Statement was a two percentage points cut to the main rate of national insurance.

Jeremy Hunt’s decision to cut Class 1 National Insurance will save an employed working couple up to £1,500 a year, based on two workers earning more than £50,270.

The decision to slash the main rate of National Insurance from 12% down to 10% is estimated to cut taxes for 27 million working people.

Rather than implement the changes from April, cuts to NI will apply from January 6 next year, a change the Chancellor hopes will provide a new year boost to working households.

NI tends to be less well understood than Income Tax, despite both being a tax on income.

It makes it an unusual choice for a crowd-pleasing tax cut to garner favour with voters. But there are two good reasons:

Firstly, it’s only paid by workers, not by pensioners, meaning it fits the government’s agenda of making work pay and boosting the finances of the working population.

Secondly, it leaves the door open for what would be a far more popular income tax cut next year, when we’re closer to a general election.

As well as cutting the main rate of NI for employees, the Chancellor also cut taxes for the self-employed.

The move to cut the rate of Class 4 contributions combined with abolishing Class 2 means a maximum £556.40 a year saving for a self-employed person earning more than the £50,270 threshold.

State Pension

The government quashed speculation that the triple-lock could be watered down, and instead committed to an 8.5% increase to the state pension next year.

It means retirees will receive an inflation-busting state pension boost from April next year, with the figure of 8.5% based on earnings from July of this year.

There had been suggestions the Treasury was considering arguing NHS bonus payouts had inflated summer earnings and that it would instead opt for lower 7.8% figure, which strips out bonuses.

This could have saved the Exchequer somewhere in the region of £1 billion but would also have left the chancellor open to the accusation of shifting the state pension goalposts, a move likely to have angered some voters.

ISA reform

The Chancellor announced a raft of reforms to the ISA system, although stopped short of a major overhaul.

To be introduced from April 2024, the new rules include:

• allowing multiple subscriptions to ISAs of the same type every year;
• allowing partial transfers of ISA funds in-year between providers;
• removing the requirement to reapply for an existing dormant ISA;
• expanding the Innovative Finance ISA to Long-Term Asset Funds (LTAFs) and open-ended property funds;
• permitting ‘certain fractional share contracts’ as eligible ISA investments;
• increasing the account opening age for adult cash ISAs from 16 to 18

These changes amount to tinkering, rather than fundamental change, and the current annual ISA (including LISA, JISA and CTF) annual contribution limits remain unchanged.

AJ Bell has long campaigned for ISA simplification, with the aim of moving from today’s system of multiple ISA products toward a simplified ‘One ISA’ encompassing the best features of today’s ISA products into a single vehicle.

This approach would simplify the options available to savers and investors, and increase flexibility by allowing them to move seamlessly between different asset types. It would also help to remove complexity in the system, and the guard against the danger that ISAs gradually develop more and more restrictions and conditions. For example, Lifetime ISAs carry various conditions on when you can open the account and when you can withdraw money, and there’s a danger that more and more ISAs are introduced with different over time, each with their own rules.

Today was an opportunity to tackle this complexity head-on. Sadly, the Chancellor appears to have bottled it.

Pension ‘pot for life’ plans

Government plans to give savers the legal right to nominate a pension scheme for their workplace automatic enrolment contributions.

Under current rules, UK firms are required to set up a pension scheme for employees that meets certain minimum standards, but the employer can select the scheme and doesn’t have to offer more than one.

These proposals, which remain at a very early stage, would see pension savers given the legal right to choose which workplace pension scheme receives their contributions when they switch jobs.

The aim is to reduce the number of small, ‘lost’ pension pots in circulation. Estimates vary and it is difficult to know for sure how much money is held in lost pension pots, but the Pensions Policy Institute (PPI) has put the figure at around £27bn.

A lifetime provider approach to workplace pensions is likely to be administratively complex, with small business in particular facing significant admin costs if they’re required to connect to multiple pension providers.

To make the idea work, some sort of clearing house would be needed to direct individual’s pension contributions to multiple schemes, with slick processes so firms are able to easily connect. But even that approach will likely leave employers with a pension administration headache.

Given the amount of work that has gone into building Pensions Dashboards – reforms which would allow people to view all their retirement pots in one place, online – it is crucial the pursuit of any new reforms doesn’t derail those plans.

Likewise, for those individuals who want to consolidate their pensions with a single provider there are plenty of options available and there is no need for them to wait for this government plan to become a reality.

Natwest shares

The Chancellor promised to unwind the government’s remaining stake in Natwest, including a retail share offering.

Invoking the ‘tell Sid’ campaign that surrounded the privatisation of British Gas, Mr. Hunt pledged to give ordinary shareholders a chance to buy shares from the government.

The announcement was scant on detail, with the government saying it will provide more information on the retail investor offer with 12 months.

OBR Report and UK economy

Looking at the fiscal forecasts, Jeremy Hunt seems to be betting the economic outlook won’t deteriorate between now and the March Budget, because if it does, he may have to deliver some unpleasant news to taxpayers just ahead of an election.

His margin of error for meeting his own very loose fiscal rule on the national debt sits at just £13 billion.

In fiscal terms it’s a hair’s breadth. The average held by Chancellors since 2010 is £29.7 billion.

And the £13 billion includes £6.2 billion of revenue from raising fuel duty in line with inflation, which no Chancellor has dared to do since 2011.

The OBR gives the Chancellor a 56% chance of getting the national debt falling in five years’ time, so the gamble is just about a good one for habitual coin flippers. However, an interest rate surprise, extraneous shocks, or economic underperformance in the next few months could leave the Chancellor on a sticky wicket come the March budget.

HMRC u-turn on pension death tax plans

The government has confirmed the lifetime allowance will be scrapped from pension rules from April next year, as previously announced by the Chancellor.

Crucially, this year the lifetime allowance remained in place but with no charges applied, meaning a future government could re-introduce the lifetime pension cap relatively easily.

Passing legislation to abolish the lifetime allowance altogether makes it far more difficult for policymakers to reverse the rules again, as Labour has pledged it would if elected.

Alongside this came welcome news on the treatment of pensions on death.

Under current rules, if you die before age 75 your beneficiaries can inherit your defined contribution (DC) pension completely tax-free if it is under your lifetime allowance. HMRC has announced that, contrary to previous plans, this situation will continue.

This is good news for pension savers. Creating a new stealth tax, as had previously been indicated in proposals put forward over the summer, would have been a massive shift in policy hitting hard the beneficiaries of pension savers who die under age 75.

Remember that the value of investments can change, and you could lose money as well as make it. How you're taxed will depend on your circumstances, and tax rules can change. Tax, ISA, Pension and LISA rules apply. A Lifetime ISA isn't for everyone. If you withdraw money before age 60, unless it's to buy your first home, you'll pay a government withdrawal charge of 25%. And if you choose to save in a Lifetime ISA instead of enrolling in, or contributing to, your workplace pension scheme, you'll miss out on your employer’s contributions. Your current and future entitlement to means-tested benefits may also be affected. Past performance is not a guide to future performance.

These articles are for information purposes only and are not a personal recommendation or advice.