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24 November 2023

Autumn Budget Statement 2023 Analysis

Like any good rumours, the content of the Autumn Statement was less sensational than the speculation that preceded it. As the Chancellor concluded his speech it became clear that some of the leaks were wide of the mark.

None of the widely speculated Inheritance Tax reforms occurred; nor has Mr Hunt increased ISA allowances, although some changes are proposed, including people being able to pay into multiple ISAs of the same type every year.

So, what did the Chancellor announce?

There is positive news for AIM investors and business owners as there has been no removal or reduction of Business Relief (BR), meaning AIM portfolios continue to be exempt from IHT from 2 years onwards if they are still held at death. BR is often seen as the trade-off for holding these higher risk investments.

Also, Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme (EIS) have been extended to 2035.

Economic backdrop

Against a backdrop of “The economy has recovered from the pandemic more quickly than first thought, grown more than expected this year, and is forecast to grow in every year of the forecast period” the Chancellor wants to “remove barriers to investment” and “reward work.”
 
He outlined how inflation was down from 11.1% to 4.6% and is expected to drop further next year and reach the target of 2% in 2025, while government borrowing is predicted to fall to 1% of GDP by 2029. The economy is expected to grow by 0.6% this year and 0.7% in 2024.
 
At a Glance: Autumn Statement
  • Pensions: the triple lock is honoured with an increase in April of 8.5% for the Basic State Pension, the New State Pension and Pension Credit, (making the New State Pension £221.30 per week).
  • National Insurance for Employees: From the 6th January 2024 it drops from 12% to 10% for earnings between £12,570 and £50,270.
  • National Insurance for Self-Employed: From the 6th April 2024 abolition of type 2 National Insurance contributions. Key here is no loss of contributory benefits including State Pension credit for those with profits above £6,725. Those with profits below this can continue to make voluntary contributions. Reduction in the rate of class 4 National Insurance contributions from 9% to 8%.
  • National Minimum Wage increases by 9.8% to £11.44 and increase in universal credit of 6.7% too.
  • Reducing National Insurance rather than Income Tax is not as profitable for workers as increasing the tax thresholds, but it does mean that this will apply across all the countries of the UK; it also won’t reduce the pension tax relief people receive on personal pension contributions as a cut in the rate of Income Tax would have.
Venture Capital Trusts and the Enterprise Investment Scheme

One of the “110 measures to increase the economy” and not mentioned by Mr Hunt directly, addresses the long-standing concern over the future for VCTs and EISs which were legislated to end in 2025.

The good news is that the Autumn Statement has extended the sunset clauses for both schemes. They provide tax breaks for those who invest in “start-ups and small and medium-sized enterprises (SME) each year who face the biggest challenges in accessing growth capital.” The government “will legislate to extend the Enterprise Investment Scheme (EIS) and Venture Capital Trusts VCT to 2035.”

Good news for investors and these businesses alike.

ISAs 

No change to allowances, but from April 2024 you will be able to pay into multiple ISAs of the same type every year and partial transfers of ISA funds will be permitted. The Chancellor’s speech indicated that if you’ve missed previous years’ contributions and are classed as “dormant” you won’t need to sign a new application or declaration but clarity of what this means is still to be made available. A revamp of the help-to-save scheme for low-income workers is on the cards.

From April 2024 permitted investments in the Innovative Finance ISA will include Long-Term Asset Funds and open-ended property funds with extended notice periods.

Pensions

The government will tackle the long-standing problem of “small pot” pensions and is launching a call for evidence on a lifetime provider model which would allow individuals to have contributions paid into their existing pension scheme when they change employer, providing greater control over their pension.

With almost £27bn said to be sitting in lost pensions, many of which are small unclaimed or forgotten pensions, this move is designed to enable people to have one pension which moves with them between employers, thus keeping it in line of sight.

To drive down costs for savers they are encouraging Defined Contribution scheme consolidation with a drive to see most savings belonging to schemes of £30bn or larger by 2030. They are also exploring how the Pension Protection Fund can be used to support Defined Benefit schemes as a “consolidator for schemes” while protecting members with consultation happening this winter.

“To support pension scheme investment into the UK’s most innovative companies,” the government will support two Long-term Investment for Technology and Science (LIFTS) initiatives, which will create new investment vehicles for pension funds, allowing pension funds to invest in UK science and technology companies.

Market Reaction

The Autumn Statement provided little to be excited about from an investment viewpoint with financial market reaction muted. The UK economy clearly needs significant investment to drive future growth, which according to forecasts remains muted through to 2026, and whilst tax breaks are welcome, a cheaper cost of debt is likely to remain a critical component. 

A couple of points are noted with relevance to the funds sector of the economy; the Financial Conduct Authority will be handed powers to deal with the confusing issue of cost disclosures that currently hangs over the UK’s Investment Trust sector and the removal of the Energy Generation Levy from new renewables projects alongside an increase in the energy price paid to offshore wind projects aimed at attracting further investment. 
ISA rules was one area not discussed in Hunt’s announcement to Parliament, and even though there was some tinkering when more details were revealed, recent lobbying for a ‘British ISA’ to encourage investment in UK companies, was seemingly ignored.

Summary

In terms of a budget that would have a wider reaching impact on investment outlook and reduce opportunities for financial planning, this one has been quite sanguine. Many measures were introduced to encourage domestic and international investment in UK companies, innovation and workforce growth but nothing that would register on a seismometer.

Good news for those with existing or interest in the higher risk tax efficient investments, in so much as the tax reliefs continue, but nothing announced which changes our outlook or investment views.
 
Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. Investments and income arising from them can fall as well as rise in value. Past performance and forecasts are not reliable indicators of future results and performance. There is an extra risk of losing money when shares are bought in some smaller companies.         

Please note that tax treatment depends on the specific circumstances of each individual and may be subject to change in the future.  
 
Redmayne Bentley has taken steps to ensure the accuracy of the information provided.                         
 
Autumn Budget Statement 2023 Analysis
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