Yahoo Finance Autumn statement: What to expect from Jeremy Hunt’s latest budget
Inflation and interest rates may influence key decisions about business and income tax cuts
Jeremy Hunt, chancellor of the exchequer, is set to deliver his second autumn statement on Wednesday as he seeks to help boost the UK economy ahead of a looming general election.
It comes as borrowing this year is on course to be lower than previously forecast, but as inflation and interest rates remain relatively high, and public finances are in a worse state than expected in March 2022.
Paul Johnson, director of the Institute for Fiscal Studies, said there is little room for the chancellor to offer any sort of giveaways. However, Hunt signalled tax cuts could be on the way, saying that the economy had “turned a corner’.
“The big message on tax cuts is there is a path to reducing the tax burden and a Conservative government will take that path,” Hunt added.
Here is a breakdown of what we can expect:
ISAs
Hunt is said to be considering reforming the Individual Savings Account (ISA) system to encourage providers to offer more competitive rates and help consumers make more in tax-free interest. The shake-up would also encourage more domestic investment in the UK stock market.
However, the chancellor is not expected to increase the £20,000 annual allowance or make changes to the lifetime ISA (LISA). Campaigners have been calling for the exit penalty to be scrapped, and for the £450,000 property limit to be increased.
But it is being argued that Hunt may allow people to hold more than one type of the same sort of ISA in each tax year which would make it much easier to open, pay into, and transfer ISAs.
“ISA changes have been widely debated, and this is a real opportunity to polish a cornerstone of people’s savings and investments,” Sarah Coles, Yahoo Finance UK columnist and head of personal finance at Hargreaves Lansdown, said.
Read more: Call to restore real value of allowance and scrap LISA cap
Meanwhile, Jason Hollands, managing director of Bestinvest, noted: “Tax-free ISAs are more important than ever before for investors because of the steep cuts the chancellor has already announced to both the annual dividend allowance and capital gains exemptions, both of which are set to halve again next April.
“The adult ISA allowance, however, has been frozen at £20,000 since the 2017/18 tax-year. We would like to see the real value of the allowance restored with an increase to at least £25,760 to adjust for the effect of CPI inflation since April 2017.”
Tax cuts
The likelihood of tax cuts in the autumn statement has risen slightly as we draw closer to the event. This had been expected to be postponed until the spring, however, the Office for Budget Responsibility (OBR) said ‘fiscal headroom’ has grown to between £13bn and £15bn – opening the opportunity for more spending or tax cuts.
The OBR also warned that economic weakness could mean this disappears by the spring – meaning it could be now or never for tax cuts.
Read more: UK wages grow faster than inflation
Coles said: “The government will be keen not to fan the flames of inflation, so if Jeremy Hunt does pull the trigger on tax cuts, inheritance tax and stamp duty are both thought to be in the frame – because they’re considered less inflationary than income tax cuts.”
Speculation has been mounting for months that the government is considering cuts to inheritance tax as a step towards pledging to scrap the death tax altogether.
Minimum wage
Minimum wage in the UK is set to rise by more than £1 an hour to £11.40 from next April. The chancellor already confirmed at the Conservative party conference that it would increase more than £11 in 2024.
It is currently £10.42 an hour for workers over 23, however, the new rate will apply to workers over 21 for the first time.
Apprentices will also get a rise, with an hourly pay increase of over 20%, going from £5.28 to £6.40 an hour.
Bryan Sanderson, chair of the Low Pay Commission, said the recommendation of increasing the minimum wage to £11.44 "attempts to steer a path" through a "high degree of political and economic uncertainty".
But Laura Suter, of stockbroker AJ Bell, said: “The move to increase the minimum wage puts more of a cost burden on businesses – while the government sets the rate, it’s businesses around the country that actually pay it. This sizeable increase might be the strongest hint yet that some tax breaks for businesses are due to be announced in the Autumn Statement – to help balance the increased costs from these rising wages.”
Watch: How to save money on a low income
Housing
There is growing speculation that the finance minister may deliver some tweaks to stamp duty on residential property.
Alice Haine, personal finance analyst at Bestinvest, said: “[This is] namely introducing an exemption for homeowners looking to downsize to a smaller property or more support for first-time buyers.
“A stamp duty exemption for downsizers could be an effective way to get the lacklustre housing market moving again, as older homeowners with substantial equity in their property may feel more encouraged to sell up and move on.”
Read more: UK locations where houses are selling fast and where they aren't
It comes as the UK property market is under pressure as high interest rates continue to cause affordability challenges for new buyers, while sellers remain reluctant to list homes.
Plans to offer first time buyers more mortgage support are likely to be delayed until the spring. The current mortgage guarantee scheme, which helps buyers with a 5% deposit, is set to run into December.
Alcohol and fuel duty
Alcohol duty is expected to rise again for the second time in four months with RPI inflation, currently 8.9%. This will push the price of an average bottle of red wine to £8, from £7.74 today.
Drinks industry officials have been calling on Hunt to freeze rises in alcohol duty after imposing an increase of around 10% for spirits, while a typical bottle of wine saw an increase of 20%.
Miles Beale, chief executive of the Wine and Spirits Trade Association, said earlier this week: “The damage done by August’s hikes are clear: they have stoked inflation, pushed up prices for cash-strapped consumers and damaged British businesses across the hard-hit alcoholic drinks and hospitality sector, including distillers.
“A second alcohol duty rise would be self-defeating and could prove the final nail in the coffin for some British drinks businesses.”
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There were also reports that Hunt was under pressure to raise fuel duty for the first time in a decade. A 2p rise would put fuel duty alone at 55p a litre and would be the first increase since 2011.
Fuel duty accounts for £26.2bn in tax revenues and freezing the 5p increase from April next year will cost the Treasury around £6bn.
Pensions
There may be some announcements regarding pensions during the statement, particularly changes to the state pension triple lock formula and measures aimed at encouraging schemes to invest in more productive assets.
Reports so far have pointed to a possible decision to adjust the triple lock formula, at least temporarily, so that the average earnings growth number used is for salaries-only but does not include bonuses.
Read more: The hidden reasons we don’t do the right thing with our finances
This would reduce the expected state pension increase baked in for next April from 8.5% to 7.8%, but still deliver a pension increase above where inflation is expected to be at that time.
Under the triple lock mechanism, the state pension increases each year by the highest of 2.5%, CPI inflation, or average earnings growth.
Analysts have also suggested there could be more details on the removal of the lifetime allowance and tax treatment of death benefits from a pension, and reforms that will give British workers a “pot for life”.
The measures will give savers the right to nominate the pension scheme their employer pays into, rather than joining their employer’s default arrangement.
A Treasury source told the Financial Times: “Helping people keep the same pension pot will stop billions of pounds being needlessly lost and make sure tomorrow’s pensioners benefit from every penny they save.”
Back to Work plan
The chancellor is set to use the autumn statement to outline a new Back to Work Plan, which will expand the employment support, and treatment available, and reform the ways that people with disabilities or health conditions interact with the state.
The government will boost four key programmes – NHS Talking Therapies, Individual Placement and Support, Restart and Universal Support – to benefit up to 1.1m people over the next five years and help those with mental or physical health conditions stay in or find work.
Since the pandemic the number of people inactive in the UK due to long-term sickness or disability has risen by almost half a million to a record high of 2.6m, with mental health, musculoskeletal conditions and heart disease being some of the main causes.
Read more: How to improve your health at work
“We are rolling out the next generation of welfare reforms to help more people start, stay and succeed in work. We know the positive impact work can have, not just on our finances, but our health and wellbeing too,” secretary of state for work and pensions, Mel Stride, said.
“So we are expanding the voluntary support for people with health conditions and disabilities, including our flagship Universal Support programme.
“But our message is clear: if you are fit, if you refuse to work, if you are taking taxpayers for a ride – we will take your benefits away.”
OBR forecast
According to Deutsche Bank, the OBR is expected to make some meaningful changes to its near-term borrowing outlook.
“A larger cash economy (ie nominal GDP) has resulted in significantly higher central government receipts than what was assumed back in March,” the lender said. “In total, we see the budget deficit revised lower by £25bn to just around £106bn in 2023/24.”
The autumn statement will be delivered by the chancellor on Wednesday 22 November at around 12.30pm.
Watch: Chancellor says 'everything on the table' in autumn statement
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