Today Jeremy Hunt announced the government’s financial update in the Autumn Statement. There were some significant changes announced that could have a significant impact on investors. The chancellor stated that the government’s priorities are stability, growth and public services and that they wish to provide “fair solutions” despite making “difficult decisions”. Hunt stated in his statement that half of the “£55bn consolidation” of government finances will come from tax rises and the other half from spending cuts.
But what measures has chancellor announced that could impact us as investors?
In terms of personal taxes there were many changes announced today, including a range of tax threshold freezes, including income tax and inheritance tax for a further two years. This is on top of the existing four-year freeze, meaning we will not see an increase to these thresholds until April 2028. The chancellor is also extending the freeze on the national insurance threshold. Coupled with the freeze on income tax thresholds, this will draw more people into the tax system or into higher tax bands as wages increase over the next few years.
This means the level at which people start paying income tax will remain at £12,570 until 2028 which will save the government £6bn a year according to the Institute of Fiscal Studies.
Higher earners are likely to feel the impact of this statement as the threshold for the 45% additional rate of tax will be cut from £150,000 to £125,140.
Other major changes have been announced with regards to tax-free allowances on dividends. Hunt has cut the tax-free allowance on dividends from the current rate of £2,000 to £1,000 in 2023 and to just £500 in 2024 which will help the government save more than £3bn between now and 2028.
Another significant announcement in today’s statement is the reduction in capital gains tax (CGT) allowance from £12,300 to £6,000 from next year. CGT is payable on all gains made on allowable investments over that figure at the rate of 10% or 20% depending on your tax status. There is also an additional 8% CGT on gains made from the sale of residential investment property. The chancellor announced this threshold will be halved again to just £3,000 in April 2024. This reform could be particularly painful to landlords and to those who invest in residential property.
The chancellor reaffirmed the government’s commitment to the state pension triple lock and announced the state pension will rise by the largest amount in history from next year. The state pension will jump by £870 to almost £204 per week, or £10,600 a year in line with inflation as of next year. The triple lock guarantees that the state pension will rise in line with either inflation, as measured by the consumer price index (CPI), average earnings or 2.5%.
The chancellor confirmed that forecasts from the Office for Budget Responsibility (OBR) show the UK’s economy will grow by 4.2% this year, however Mr Hunt has confirmed that the economy is already in recession with high energy prices being blamed for the revision of growth rates and are predicting the economy to shrink by 1.4% next year.
Hunt confirmed that borrowing for the current financial year would be 7.1% of GDP with the OBR estimating a budget deficit of £177bn in 2022/23. The chancellor has stated that borrowing will have “more than halved” by the actions in the autumn statement.
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