Autumn Statement outcomes – give and take

The Chancellor presented a programme of tax cuts in his Autumn Statement, yet the tax burden continues to increase.

The Office for Budget Responsibility (OBR) has the job of analysing the financial impact of the Autumn Statement. The executive summary of the OBR’s 170-page ‘Economic and Fiscal Outlook’ summarised what is happening beneath the headlines:

 

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.

 

While Mr Hunt did indeed make some significant tax cuts, the painful fact is that they are outweighed by earlier tax increases over the last few years.

 

National Insurance

The most eye-catching announcements were cuts made to National Insurance contributions (NICs):

  • If you are an employee under State pension age (currently 66), then from 6 January 2024 the main class 1 contribution rate on earnings from £12,570 to £50,270 reduces from 12% to 10%. Income above £50,270 will remain at the current 2% rate.
  • If you are self-employed and under State pension age from 6 April 2024:
    • Flat rate class 2 NICs (currently £3.45 a week) will no longer be required. However, if your annual profits are below £6,725 you can continue to make voluntary class 2 contributions to secure contributory benefits, such as the State pension.
    • The class 4 contribution rate on profits between £12,570 and £50,270 will be reduced from 9% to 8%. For profits above £50,270 the existing 2% rate remains unchanged.

These changes are worth up to £556 a year if you are self-employed and £754 a year if you are an employee. Their total cost to the Exchequer is about £10 billion a year by 2028/29.

However, the freezes to income tax and NIC allowances and thresholds since 2021/22, and this year’s lowered additional (top) rate threshold, mean the Treasury will be gaining £27 billion in the coming tax year. By 2028/29 that advantage will exceed £44 billion.

 

Capital Allowances

For companies the major news was that the 100% capital allowance for most investments in new plant and machinery, which was due to disappear after March 2026, will be made permanent, at an initial annual cost of around £10.7 billion.

 

Wave of change

As with any ‘fiscal event’, there was a host of other changes, proposals and consultations in the forest of documentation from HMRC and the Treasury. Among the 110 proposals were:

  • Long overdue simplification of the ISA rules from 6 April 2024 and consultation on allowing partial shares to be eligible investments.
  • A change to the rules on off-payroll working (IR35) that will avoid the double taxation that can currently arise.
  • A raft of papers on various aspects of pensions, the most noteworthy of which was probably a first step towards allowing individuals to have a single pension pot which moves with them from employer to employer.
  • More changes to Making Tax Digital (MTD), aimed at simplifying the procedures of this much-delayed reform.
  • An overhaul of research and development (R&D) tax reliefs, merging the two existing schemes for accounting periods beginning after 31 March 2024.
  • A 9.8% increase in the National Living Wage to £11.44 an hour from April 2024.

For more information on the changes mentioned above or any other aspects of the Autumn Statement, please contact us.

 

The value of your pension or investment and the income from it can go down as well as up and you may not get back the full amount you invested.

Investing in shares should be regarded as a long-term investment and should fit with your overall attitude to risk and financial circumstances.

The Financial Conduct Authority does not regulate tax advice. Tax treatment varies according to individual circumstances and is subject to change