Today (22 November) the Chancellor, Jeremy Hunt, announced various changes to taxes and public spending in his 2023 Spring Budget.
As usual, many of these changes were leaked beforehand but there were several unexpected announcements. This post focuses purely on personal finance news but there were many other announcements regarding benefits and business.
If you are affected by any of today’s announcements, or would like to review your finances to check, you can book a free initial appointment with one of our advisers. Call 01642 477758 or email reception@boblittle.co.uk
National Insurance
Hunt made several key changes to National Insurance Contributions (NICs):
- Class 2 NICs – paid by self-employed people earning more than £12,570 per year – will be abolished from April 2024
- Class 4 NICs – paid by self-employed people on their profits between £12,570 and £50,270 – will be cut from 9% to 8% from April 2024
- Class 1 employee NICs – paid by 27 million people – will be cut from 12% to 10% from January 2024
The final bullet point is expected to have the biggest impact and – unusually – it will be introduced mid-way through the tax year.
It won’t come cheap either – the government’s own accounts forecast an annual cost of nearly £9 billion per year.
Income Tax
Disappointingly, no announcements were made regarding income tax.
Many hoped we would see a rise in the Personal Allowance (the amount you can earn before paying income tax) and/or the basic rate allowance (the amount you can earn after your tax-free amount before paying the higher rate of income tax).
There was no mention of increasing the Personal Savings Allowance (the amount of interest you can earn before paying income tax), despite significant rises in interest rates in recent years.
The Chancellor previously announced cuts to the Dividend Allowance, from £2,000 to £1,000 and then down to £500 from next April. This was not mentioned, so the next cut is likely to go ahead as planned.
All of this means the stealth tax regime has been extended for yet another year.
Pensions
The Chancellor announced a consultation on the creation of a “pot for life” for workplace pensions. We often meet clients with multiple smaller pension pots which have accrued with different employers. This can create an administrative headache and has even resulted in client’s forgetting older pension plans.
This multiple pot situation happens because employers have the final say on which pension plan they use. Hunt wants to force employer’s to accept any pension plan nominated by an employee.
While we welcome this announcement, it will create an administrative burden for employers.
No other changes were announced regarding pension legislation. This suggests a major previous announcement – the abolishment of the Lifetime Allowance – will proceed as planned.
Hunt announced an 8.5% rise in the State Pension, in line with the Average Earnings Index. There had been some fears of the definition of “Average Earnings” being amended to remove the impact of bonuses – which made up a large part of the 8.5% figure. These fears did not materialise.
ISAs
Disappointingly, ISA allowances will be frozen for yet another year. With the reduction in the dividend allowance and the frozen Personal Savings Allowance, the lack of an ISA allowance uplift will result in more and more investors/savers paying tax on their interest and dividends.
Inheritance Tax
The government “accidentally leaked” news it was considering abolishing Inheritance Tax or cutting the rate from 40% to 20%. In the end, no changes were announced.
Inheritance Tax remains highly controversial. The UK’s rate of 40% is one of the world’s highest, yet any plans to soften estate taxes are always met with backlash from those who point out it is only paid by a small percentage of estates.
There are rumours the Conservatives view a change to Inheritance Tax rules as a way to claw back support in the South East. This means we could see some changes announced as part of the next Tory Manifesto.
Summary
The Autumn Statement had a clear underlying message: support for workers (whether employed or self-employed). This is evident in the cuts to National Insurance contributions, boosts to the Minimum Wage system, and (potentially controversial) changes to the benefits system for those who are deemed able to work but who refuse to do so.
The Chancellor loosened the purse strings a little with his announcements. This was to be expected – a general election is likely to take place some time in 2024, so this could be one of Hunt’s last Autumn Statements as Chancellor.
Tax cuts will always prove popular (as long as they are well funded – see Liz Truss and Kwasi Kwarteng for proof of what happens otherwise). Hunt will now hope he has done enough to convince voters of the Conservative party’s vision for the future.
Realistically, though, workers remain worse off in real terms compared with previous years. While Hunt cut National Insurance rates, no changes were announced to income tax allowances or rates. The income tax allowance has now been frozen for several years, despite rising wages/pensions in the meantime.
Those who will receive greater wages or pensions in nominal terms as a result of today’s announcements – for example, those who will benefit from a rise in the Minimum Wage or the State Pension – could also find themselves losing part of this raise to income tax.
