Chancellor Jeremy Hunt had been under intense pressure from fellow Conservatives to deliver a tax-cutting Autumn Statement that showed the party was responding to voters’ financial struggles.
Hunt had warned in recent weeks that the UK could not afford to cut taxes, even as a general election looms next year. In the event, he said that better than expected public finances allowed him to help individuals, with cuts to national insurance contributions and a boost to the state pension.
However, the overall rise in the tax burden was made clear in analysis by the Office for Budget Responsibility. “While personal and business tax cuts reduce the tax burden by half a percentage point, it still rises in each of the next five years to a post-war high of 38 per cent of GDP,” the OBR said.
Here is our summary of how the key measures will affect your personal finances:
Tax
The chancellor cut national insurance contributions for both employed and self-employed people. He announced that from April 2024, the government would abolish class 2 national insurance contributions, which are paid by the self-employed at a flat rate of £3.45 a week. The move will benefit about 2mn people.
He also announced a 1 percentage point drop on class 4 NICs, which are currently paid at 9 per cent on profits between £12,570 and £50,270. From April 2024, this would fall to 8 per cent, Hunt said. The tax cuts will be worth an average of £350 for a self-employed person earning £28,200 a year.
There were also cuts in NICs for employees. The national insurance rate paid on earnings of between £12,570 and £50,270 will fall by 2 percentage points from 12 per cent to 10 per cent.
This would save someone on an average salary of £35,000 about £450 a year. Hunt planned to introduce emergency legislation to bring this in on January 6.
Pensions
Hunt unveiled a shake-up of the pensions system aimed at giving workers greater control over where they build their retirement funds.
Pension savers are to be given the legal right to ask their employer to pay into a retirement fund of their choice under the changes.
Hunt announced the changes alongside plans to give the UK pensions lifeboat fund a new role as a consolidator of small corporate pension schemes.
Under the plans, by 2030 the majority of workplace pension savers would be in funds of £30bn or larger, signalling a big shift in the pensions market.
Experts said the proposal could tackle the problem which has developed as a result of savers switching jobs throughout their careers and accumulating multiple small pension pots which are then difficult to track down later in life.
“Pot for Life can potentially resolve this problem, cap off the flow of new small pension pots and reduce the need for so many pension transfers,” said Tom McPhail, director of public affairs at consultants The Lang Cat, a financial services consultancy.
Worries over the “triple lock” uprating of the state pension were mollified after Hunt said the government would put through an 8.5 per cent rise in the state pension. The triple lock commits ministers to raise the state pension by whichever is highest of average earnings growth, CPI inflation or 2.5 per cent.
Investment
Individual savings accounts (Isas) will be overhauled to enable savers to pay into multiple accounts of the same type for the first time next April, while the current £20,000 tax-free allowance will remain unchanged.
Rules will also be altered to enable savers to invest in long-term asset funds, a type of open-ended fund invested in illiquid assets including private equity and real estate. Proposals to incorporate fractional shares will feature in a wider consultation.
Hunt also announced that the government would consult in the next year on a potential retail sale of its share of NatWest Group, “subject to supportive market conditions and achieving value for money”. The government has previously committed to exiting the investment fully by 2026.
The government bailed out the bank during the financial crisis, becoming its majority shareholder in November 2008. It has since sold off tranches of ordinary shares, most recently in May 2023.
NatWest group’s share price has fallen 25 per cent this year, in part following the controversy surrounding Nigel Farage’s Coutts account that led to Dame Alison Rose’s resignation as chief executive in July.
The government said it would extend the tax advantages of venture capital trusts and the enterprise investment scheme by 10 years to 2035. VCTs and EIS fell foul of EU state aid rules; the extension follows a post-Brexit government inquiry into the venture capital market.
Some investors welcomed the extension, while lamenting it did not go far enough. “A bolder move would have been to increase the income tax credits for investing in VCT new shares from 30 per cent to 40 per cent — a level they were at in 2005-06,” said Jason Hollands, managing director of broker Bestinvest.
Property
For homeowners, the chancellor said the government would consult on new rules to allow any house to be converted into two flats, provided the exterior was unchanged, as part of a raft of measures “to unlock the building of more homes”.
The government also said it would unfreeze the local housing allowance to help families with the cost of living. Hunt said the local housing allowance would rise, delivering an average increase of £800 for 1.6mn households.
The UK has faced record rent increases this year. The chancellor said: “‘Rent can constitute half the living cost of private renters on the lowest incomes.”
The local housing allowance is used to calculate housing benefit for tenants renting from private landlords. The rates have been frozen since 2020, while rents have risen by almost a third.
Low pay and other measures
The national living wage for workers aged 21 and above will increase to £11.44 per hour from April next year. Announced on Tuesday, the rise represents a 12.4 per cent jump for those aged 21-23 and 9.8 per cent for those aged over 23. For 18- to 20-year-olds, the hourly rate will rise by £1.11 to £8.60 per hour.
Universal credit and other benefits will be increased by 6.7 per cent, in line with September’s inflation figures. This means that 5.5mn households on universal credit will gain £470 on average in 2024 and 2025.
Households living near new transmission infrastructure could be offered money off their energy bills of up to £10,000 over 10 years.
The chancellor said the government would freeze alcohol duty until August 2024.
Reporting by: Emma Agyemang, Josephine Cumbo, Martha Muir, Arjun Neil Alim, Joshua Oliver, Rafe Uddin
Autumn Statement: What the experts say
Nimesh Shah, chief executive, Blick Rothenberg
When is a tax cut not a tax cut? The £50bn cuts to national insurance contributions are not as generous as the chancellor proclaimed. Lower earners might have preferred an inflationary increase to the personal allowance: someone earning £20,000 would have been £185 better off (compared with £149 for the NIC changes) had Jeremy Hunt simply increased the allowance by the 4.6 per cent rate of inflation.
Frozen allowances and tax thresholds continue to cause pain for taxpayers. Middle earners may feel slightly less squeezed after today. Someone earning £60,000 is going to be £63 a month better off with the 2 per cent NIC cut. But accounting for inflation after 2010-11, they have taken a real terms hit of almost £17,000 over that period.
Abolishing class 2 NICs for the self-employed is generous, but I don’t see the self-employed doing cartwheels. They were handed a £179 saving from the class 2 move, and a 1 percentage point class 4 NIC cut from April 2024. I would have liked to have seen reform of the IR35 off payroll working rules, which continue to cause frustration.
Christine Ross, client director at Handelsbanken Wealth & Asset Management
The Autumn Statement delivered some immediate relief from tax for many, though there were no announcements in the speech for savers. The annual limits on individual savings accounts (Isas) are frozen at the present level of £20,000 for the next tax year.
There were nonetheless substantive changes to the Isa regime in the Treasury documents. Savers will now be able to open multiple Isas of the same type within a single tax year. At the moment individuals are restricted to one cash Isa and one stocks and shares Isa annually.
Savers and investors will also be able to ask for a partial transfer of an Isa fund to another provider. With some attractive cash deposit rates on offer, this increased flexibility should stoke competition and allow savers to vote with their feet. However, it is a measure that risks increasing the incidence of duplicate subscriptions.
The minimum age for Isa applications has been set at 18. At present, a minor can have a £9,000 Junior Isa annual subscription until age 18 as well as a cash Isa from age 16, allowing 16 to 18 year olds (or their parents on their behalf) to save a total of £29,000 in each of the two years. An anomaly welcomed by young savers and their parents, it will now end.
Simon Edelsten, former fund manager
Retail investors may benefit from the extension of capital allowances, with some mature large companies in the FTSE index having substantial fixed assets. (Smaller growth stocks often have more intangible assets.) Many of these large UK stocks plan to invest to reach net zero targets. They also often have very high current dividend yields, such at British Telecom or British Land, yielding over 6 per cent.
Hunt announced plans to sell more of its holdings in NatWest Group, referencing the “Tell Sid” advertising campaign of the 1980s. British Telecom and British Gas were among those privatisations which encouraged British savers to dip their toes in the stock market. But investing in utilities like these is a different proposition to investing in a bank. The value of a bank’s shares has been well described as “the sliver of hope between massive loans and deposits”. The latest placing in NatWest may not be very popular with the public.
Laura Suter, head of personal finance, AJ Bell
The idea that you can have one pension pot for life, following you around your various jobs, is good in theory. The average person changes jobs 11 times in their lifetime. We know that there’s an estimated £27bn sitting in lost pension pots — and any plan to reunite them with their owners should be applauded.
But making it a reality looks challenging. For it to work, every business in the country, from the local hairdresser and café to multinational companies, would potentially need the ability to connect with any pension scheme in the country.
The government acknowledges that this would require a central clearing house, but has swatted away any mention of who would build or pay for it. This won’t be a quick win, if the delays besetting the “pensions dashboard”, a similar project, are any guide.
And while the branding of “pot for life” is great, employees can make it a reality already, by consolidating their pension schemes in one place. They don’t need to wait for the government’s latest proposals to come to fruition.
