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The Chancellor delivered his long-awaited Autumn Statement on 22 November 2023. He argued that it took a “responsible approach” to public spending and debt, with the budget arriving at a time of better overall health in the UK economy. CPI inflation had recently fallen from 6.7% to 4.7% in the space of only a month, leading Prime Minister Rishi Sunak to state that the country could now afford some modest tax cuts without overheating the economy.
Investors, of course, are wondering what the new budget means for their portfolios moving forward. Below, our team at Bure Valley Group explain how the Autumn Statement might affect your investment strategy as 2024 arrives.
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The Autumn Statement – what were the highlights?
The Chancellor’s speech was notable for what it did not contain as much as for what it did contain. There was no reversal of the decision to gradually reduce tax-free allowances for investors (which had started in April 2023). Income tax bands remained frozen, including the tax-free Personal Allowance for income tax which will continue at £12,570 per tax year for the foreseeable future.
Inheritance tax (IHT) was not changed and neither was the ISA allowance. However, from April 2024 investors will be allowed to contribute to multiple cash ISAs and Stocks & Shares ISAs (at present, an individual can only commit to one of each type in a given tax year). Rules will also be relaxed to allow ISA investors greater access to “long-term asset funds”.
However, the headline change was the planned cut in Class 4 National Insurance (NI), paid by self-employed people, from 9% to 8% next year. This group will also benefit from the complete abolition of Class 2 NI contributions (payable at £3.45 per week). Overall, the Chancellor argues that these changes should leave the average worker better off by £450 next year.
There are two other important notes from the budget. Firstly, the triple lock was confirmed for the State Pension, leading to a planned 8.5% increase next April. Secondly, and of particular note to early-stage investors, the EIS “sunset clause” for venture capital was confirmed for an extension beyond 2025 (to 2035).
What should investors make of the budget?
Many people will have been disappointed (albeit unlikely surprised) that income tax rates were not lowered in the Autumn Statement. The planned cut to NI is an interesting political move by the Chancellor which potentially signals preparations for an early general election in 2024. Indeed, Keir Starmer has warned his shadow cabinet that a poll could be due next summer. So, we could be facing a range of manifesto promises soon covering a host of different taxes which affect investors – e.g. income tax, VAT and more.
The extension to the EIS sunset clause is certainly welcome for many investors. This gives them more certainty about how to plan their long-term strategy. However, it is still worth discussing your options with a professional adviser to account for potential changes in the future political landscape. Whilst the current Conservative government appears committed to EIS, a different administration might not be (e.g. one which seeks to bring the UK into closer alignment with EU rules). Diversifying your holdings and exit dates can help to mitigate these risks.
It could be argued that the cut to NI rates is good news for small business owners, many of whom are self-employed. More money back in sole traders’ pockets could help to boost entrepreneurship and job creation across the UK. However, many have noted that the NI cut pales in comparison to the overall tax burden which has increased for the British people over recent years. The current tax burden is 37% of national income – the highest since the Second World War. With income tax rates and thresholds unchanged, the Autumn Statement does little to prevent millions of workers from eventually being dragged into higher tax brackets over the coming years due to wage inflation.
Conclusion & invitation
There are some welcome developments from the Autumn Statement for investors. The fall in CPI inflation is good news, although investors should be cautious that “core inflation” remains stubbornly high. However, the government does not yet appear committed to a significant change in direction regarding fiscal policy (e.g. changing corporation tax and investor-related taxes, such as capital gains tax).
A possible future Labour government, with its strong left-leaning underpinnings, is unlikely to change this trend in favour of high-net-worth individuals (HNIs). Having a strong financial plan which accounts for different future policy scenarios will be very helpful for maintaining an investor’s progress towards wealth growth and preservation.
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