We’re now less than a month away from Jeremy Hunt’s Autumn Statement which is scheduled to take place on 22 November.
The Autumn Statement will see the Chancellor outline the Government’s plans for the economy, based on the latest forecasts from the Office for Budget Responsibility (OBR).
Against the backdrop of the continuing cost-of-living crisis, high inflation and increasing mortgage costs for millions, there are rumours about what will be announced in the statement.
Whatever Hunt says on 22 November will have a big impact on household finances.
Here are some of the things that could be in the statement.
Inflation forecast
Inflation has fallen slightly over the past few months, but still remains high at 6.7%. This is well above the Government’s target of 2%.
In January this year, when inflation was at 10.1%, the prime minister said he would half inflation by the end of 2023.
Financial experts now predict that inflation will fall to 4.6% by the end of the year and this is likely to be something Hunt discusses in the Autumn Statement.
Tax cuts
There is pressure on the Government to make tax cuts, after it froze income tax thresholds for six years.
The freeze has seen the personal allowance remain at £12,570 and the higher-rate tax threshold at £50,270. The additional rate of tax, set at 45%, was also reduced from £150,000 to £125,140.
However, the chances of the Chancellor announcing tax cuts are almost zero. Hunt recently told LBC Radio that tax cuts will be ‘virtually impossible’ to make happen until the country’s high levels of debt are brought down and the economy is under control.
Personal Savings Allowance (PSA) re-think
Some financial experts are calling on the government to end the freeze on the PSA, which has been set at the same level since 2016. Depending on your tax bracket, your PSA allows you to save up to £1,000 a year in tax-free interest.
Tom Selby, AJ Bell head of retirement policy, said: “The number of people set to pay tax on cash savings interest is set to rise by a million this year alone, as a consequence of the frozen threshold which has not been adjusted to reflect inflation and rising interest rates. This includes over 1.4 million basic rate taxpayers and low earners, demonstrating that this tax is impacting everyday Brits, as well as wealthy individuals with large sums in cash.
“Doubling the personal savings allowance would mean that £20,000 held in a 5% savings account would not be taxed for basic and higher rate taxpayers, ending the penalty on those who do the responsible thing by building up a cash savings buffer for a rainy day.”
Inheritance tax (IHT) overhaul
There have been reports that Government ministers are discussing the possibility of making changes to IHT.
At the moment, IHT is charged at 40% for estates worth more than £325,000. Families can also benefit from an additional £175,000 allowance towards a main residence if it is passed to children or grandchildren. A married couple can share their allowance, which means parents can pass on £1m to their children without any tax to pay.
Shaun Moore, tax and financial planning expert at Quilter, said: “Increasing the nil rate band to £500,000 and £1m for married couples would be a relatively straightforward option that would help to slow the ever-increasing numbers of people getting caught in the IHT net. It could be accompanied by the removal of the residence nil rate band, given it is fiendishly complex and favours married households, which is not reflective of the modern society we live in.
“The Government could also look at simply lowering the headline rate of 40%. This could be lowered to a 30% or 20% rate, with the latter aligning to the chargeable lifetime transfer regime. This alongside the removal of many of the available exemptions available would be sensible and help to simplify IHT.”
Benefits cuts
Another rumour circulating is that the Chancellor will make a real-term cut to benefits. If this were to happen it could mean benefits would not rise in line with inflation, as they usually do.
Speaking at the Tory Party conference, Hunt threatened tougher sanctions for benefits claimants who refuse to take active steps to find work.
He claimed around 100,000 people are leaving the labour force every year for ‘a life on benefits’.
The Government has already begun a consultation into changing the ‘work capability assessment’ so that those people with disabilities and poor mental health are encouraged to find jobs that involve working from home.
But, in a period of deep economic uncertainty where millions of people are struggling to pay their bills, cutting benefits would be an unpopular move.
ISA simplification
Several financial experts have put forward suggestions for an overhaul of the ISA regime.
Around 27 million UK adults hold savings and investments in an ISA, valued at approximately £687bn. However, the current ISA options can be confusing with products including equity and cash ISAs, as well as Help to Buy, Lifetime, and Innovative Finance ISAs.
Interactive Investor is calling for the consolidation of existing ISA choices into equity ISAs (including Junior ISAs) and cash ISAs, providing clarity for investors and fostering more informed decision-making.
Alice Guy, head of pensions and savings at Interactive Investor, said: “The proliferation of ISA options has inadvertently discouraged potential savers. By simplifying the choices, we can make ISAs more approachable and user-friendly for all. We want to ensure ISAs do not mirror the complexity that the UK’s pension system has accumulated over time, becoming difficult for individuals to navigate. Our ISAs are at risk of heading down the same road.”
Changes to the pensions triple lock
The Government could use the Autumn Statement as an opportunity to decide how to sustainably set the state pension for the long term.
The “triple lock” guarantee, introduced in 2010, guarantees that the state pension will rise each year by the highest of three measurements: average earnings growth, the Consumer Prices Index (CPI) inflation rate, or 2.5%.
While it has played an important role in protecting pensioners from inflation and ensuring that their income doesn’t fall behind that of the working-age population, there are also valid arguments that it simply is not sustainable over the long term. Therefore reforming the triple lock would fit nicely with Sunak’s ethos of taking difficult decisions for the long term prosperity of the country.
“At some point whichever party is in government needs to face up to the fact that we need to look at the policy and replace it with something that can help ensure future generations can have access to a state pension that is of a meaningful value and is sustainable and fair,” said Jon Greer, head of retirement policy at Quilter, “The triple lock can be financially unpredictable as we have seen over the past few years where soaring inflation and wage growth has triggered a significant state pension uprating. In years where inflation or average earnings growth spike significantly, the cost to the Treasury is immense and uncertain.”
Experts say that pegging pensions to a fixed percentage of average earnings would provide a more predictable and sustainable model. If the nation prospers and average earnings increase, so too would pensions. Conversely, if the country faces economic challenges and average earnings stagnate or decrease, pensions would reflect this.
