Autumn Statement 2023 — highlights and what it means

Jeremy Hunt has announced the Autumn Statement but what does that mean for you? How will it impact your finances? And what exactly are the changes?

Our experts Jon Shankland, Partner and Head of International Private Wealth, and Haydn Rogan, Partner and Head of Tax, take a closer look at the government’s plans and bring you everything you need to know.

As ever the Budget contains a wealth of detail and much to digest. If you have any questions about what you should do next, please get in touch.

Highlights

• The main rate of class 1 employee national insurance contributions (NICs) will be reduced from 12% to 10% with effect from 6 January 2024. The main rate of class 4 self-employed NICs will be cut from 9% to 8% from 6 April 2024 and class 2 will no longer be required.
• Full expensing of investments made by companies in qualifying plant and machinery will be made permanent and will therefore continue after April 2026.
• The main income tax allowances and thresholds, the main NICs thresholds plus the inheritance tax (IHT) nil rate bands will stay at their current levels for 2024/25.
• The new and old state pension as well as pension credit will rise by the full triple lock increase of 8.5% for 2024/25. Universal credit and most other benefits will increase by 6.7%.
• Investors will be allowed to make multiple subscriptions to ISAs of the same type each year from April 2024, when partial transfers of ISAs between providers will also be permitted.
• The national living wage will increase to £11.44 an hour.
• All alcohol duties have been frozen until August 2024.
• The government is seeking to persuade people with health conditions to find work. There is extra funding, as well as new sanctions for those who are found to be able to work but refuse to look for employment.

Haydn Rogan said: "Making the full expensing scheme permanent is a classic case of putting the cart before the horse. In an environment of high-interest rates, weak demand and expensive input costs, the reality is that many firms simply don’t have the money available to make sizeable investments that would help shrink their tax bill under this relief. It may be more helpful in the future, but it’s not really what businesses need now.

Another freeze in fuel duty is a move that will be widely welcomed. It means lower operating costs for businesses and firms in their supply chains. The intention to simplify R&D tax relief schemes for SMEs is also an important new measure, and could be particularly valuable for smaller businesses in the UK’s tech sector, pending consultation."

Introduction

Jeremy Hunt’s second Autumn Statement was set against a much less financially turbulent background than his first. However, politics still loomed large with a likely election in the next 12 months prompting calls for tax cuts from within the Conservative party. Until recently the Chancellor had attempted to stall such demands with warnings of “difficult decisions” on the public finances owing to a worsened fiscal outlook since his Spring Budget. One reason that he highlighted for the deterioration was the sharply increased cost of government borrowing.

Nevertheless, the Chancellor, who had argued only two months ago that tax cuts were “virtually impossible”, appears to have had a change of heart. Echoing the Prime Minister, Mr Hunt suggested that the achievement of halving inflation in 2023 marked an economic inflexion point that permitted a new policy approach.

The outcome was an Autumn Statement that had been initially trailed as focusing on longer-term issues, but which prioritised short-term tax cuts over maintaining expenditure in later years. On the long term front, the Chancellor confirmed as expected that ‘full expensing’ of corporate investment in plant and machinery would be made permanent at a cost of £10.7 billion a year by 2027/28. The most headline-grabbing moves were cuts to national insurance.

Some of the rumours, such as IHT reform, did not come to fruition, but there is still a chance – the Spring Budget is now less than four months away.

Haydn Rogan, partner and head of tax at law firm Weightmans in Manchester, said: "This is a mixed bag for businesses. Given the strength of the headwinds buffeting UK Plc, this Autumn Statement feels like window dressing and not the ambitious action that businesses really need.

If the government wants to support investment from British businesses, a cut in Corporation Tax – even to 22% – would be a bold, effective move, freeing up the cash companies need to grow. A proper reform of business rates that went beyond an extended freeze for leisure and hospitality businesses was also absent. Overhauling these rates are endlessly debated but never actioned.

Given the government’s current fiscal position, it’s unlikely we’ll see anything like this, any time soon. This puts the onus on businesses in the meantime to ensure that they’re making the most of all available deductions and reliefs.”

Economic Update

The economic backdrop to the Autumn Statement was not as bad as might have been expected from a reading of the March 2023 projections by the Office for Budget Responsibility (OBR). In the spring, the OBR’s first Economic and Fiscal Outlook of 2023 envisaged that the government would borrow £131.6 billion. Seven months into the financial year, the OBR’s projection has dropped by about £16 billion because of stronger than expected tax revenue, giving the Chancellor some extra wiggle room.

This tax windfall owes much to the impact of both price inflation and earnings growth being higher than projected in March. Back then the OBR had suggested that CPI annual inflation would fall to around 3% in the final quarter of 2023 against its latest projection of about 4.5%.

The higher-for-longer combination of inflation, earnings growth and interest rates has brought some significant changes to the OBR’s projections for the economy:

• The OBR forecast says inflation will not now fall to 2% until the second quarter of 2025, a year later than previously forecast.
• The outlook for economic growth in the short term has improved, with +0.6% expected for 2023 against a 0.2% contraction in the March forecast. However, the OBR’s growth projections for 2024 and 2025 are both 1.1% lower than their March figures.
• Ten-year government bond yields at 4.5% are 1.2% higher than the OBR’s March projection. The OBR has now added this figure to its previous projections of government borrowing costs for the entire five-year forecast period. Base rate is now expected to average about 4% in 2027/28, just over 1% above the March projection.
• Government borrowing is projected to be £84.6 billion in 2024/25 and eventually to drop to just below £50 billion in 2027/28. But total government debt will then amount to £2,947 billion (93.2% of GDP) costing £98.4 billion a year to service.

The OBR says the Chancellor will meet his fiscal goal in 2028/29 by £13 billion (0.4% of GDP), double the amount it projected in March. That margin could prove a challenge to maintain for the next government.

Personal taxation

On personal tax plans, Haydn Rogan says:
“The national insurance reform is good news and necessary. Reducing the headline rates of national insurance is a welcome move and the cuts to the national insurance rates for the self-employed will be particularly welcome for those sole traders who have borne the brunt of many tax rises over recent years.

Again, this makes it even more important for individuals to be making the most of all possible tax reliefs in the meantime, and to be planning ahead to avoid paying unnecessary levies.”

Income tax

The personal allowance will remain at £12,570 for 2024/25 and the higher rate threshold will stay at £50,270, both levels that first took effect in 2021/22. The blind person’s allowance will be increased to £3,070 for 2024/25.

The 45% additional rate threshold will stay at £125,140. In Scotland, the intermediate, higher and top (additional) rate thresholds for non-savings, non-dividend income will be announced in the Scottish Budget, to be published on 19 December.

Dividend tax

The dividend allowance will be halved to £500 for 2024/25 as already announced.

Income tax for trusts and estates

The standard rate band for trusts will no longer apply in 2024/25, as previously announced and legislated. Instead, trusts with income of £500 or less will have no tax to pay. Where a settlor has created more than one trust, the threshold amount will be £500 divided by the total number of existing trusts, subject to a £100 minimum. If the threshold is exceeded, trust tax rates apply to all income.

There will be no tax for estates where the income does not exceed £500. In such circumstances, estate income paid to beneficiaries will also be free of tax.

National insurance contributions (NICs)

The class 1 primary threshold and class 4 lower profits limit will remain aligned with the personal allowance (£12,570). The upper earnings limit and class 4 upper profits limit will remain aligned with the higher rate threshold at £50,270 through to April 2028. The lower earnings limit (£6,396) and the small profits threshold (£6,725) will remain unchanged in 2024/25.

From 6 January 2024 the class 1 primary (employee) contributions rate on earnings between £12,570 and £50,270 will be cut by 2% to 10%. The 2% rate on earnings above £50,270 will remain unchanged.

From 6 April 2024, class 2 contributions will no longer be required from the self-employed. However, those with profits below £6,725 (unchanged) who wish to retain access to contributory benefits (e.g. state pension) will continue to have the option to make voluntary contributions.

From the same date, the class 4 contribution rate on earnings between £12,570 and £50,270 will be reduced by 1% to 8%. The 2% rate on earnings above the upper limit will be unchanged.

The voluntary class 3 rate will be unchanged at £17.45 a week for 2024/25.

Pay as you earn (PAYE) – self assessment

Individuals with income taxed only through PAYE will no longer be required to file a self assessment return from 2024/25.

Off-payroll working (IR35)

HMRC will be able to reduce the PAYE liability of a deemed employer to account for taxes paid by a worker and their intermediary on payments received where an error has been made in applying the off-payroll working rules.

Company cars and vans

The benefit-in-kind appropriate percentages for all cars will remain unchanged for 2024/25. Car and van fuel benefit charges and the van benefit charge will also remain at 2023/24 levels.

Capital gains tax

The annual exempt amount for individuals and personal representatives will be halved to £3,000 in 2024/25, as previously announced. The annual exempt amount for most trusts will be cut to £1,500 (minimum £300).

Inheritance tax

The nil rate band for 2024/25 will remain at £325,000, which was the level first set in 2009/10. The residence nil rate band (RNRB) will likewise stay at £175,000 and the RNRB taper will continue to apply where the value of the deceased’s estate is greater than £2 million.

Stamp duty land tax (SDLT)

The SDLT bands for residential property in England and Northern Ireland will remain unchanged until 1 April 2025. From that date, the 0% band threshold will be halved to £125,000 and a 2% rate applied between £125,000 and £250,000.

Enveloped dwellings (ATED)

The annual chargeable amounts for the ATED will be increased by 6.7% for 2024/25.

State pensions and social security benefits

The basic state pension, new state pension and pension credit standard minimum guarantee will be increased by 8.5% in April 2024, in line with May to July earnings growth under the triple lock provisions. All other UK-wide benefits will increase by 6.7% from April 2024.

Local Housing Allowance rates in Great Britain will be raised to the 30th percentile of local market rents in April 2024. At present they are based on April 2020 rental levels.

Pensions

Nine documents were published relating to the pensions framework. These included calls for evidence on a lifetime provider model to allow individuals to move towards having one pension pot for life and also on the creation of a ‘public consolidator’ for defined benefit schemes, to be run by the Pension Protection Fund.

Additional tax-related papers were issued about amending the relief at source arrangements, as previously proposed, and clarifying the impact of the abolition of the lifetime allowance from 6 April 2024.

Individual savings accounts (ISAs)

Various reforms were announced for ISAs. From April 2024:

• Investors will be allowed to make multiple subscriptions each year to ISAs of the same type.
• Partial transfers of ISA funds in-year between providers will be allowed.
• There will no longer be a requirement to reapply annually for an existing dormant ISA.
• The Innovative ISA will be expanded to allow investment in Long-Term Asset Funds and open-ended property funds with extended notice periods.
• The minimum account-opening age for adult ISAs will be harmonised at 18, removing the current cash-only adult ISA for 16 to 17-year-olds.
• Contribution limits will be unchanged.

The government will engage with providers about permitting certain fractional shares contracts as eligible ISA investments. 

Venture capital schemes

The sunset clauses for the enterprise investment scheme (EIS) and venture capital trusts (VCTs) will be extended from 6 April 2025 to 6 April 2035.

Income tax

* Personal allowance reduced by £1 for every £2 of adjusted net income over £100,000.
† Reduced by £1 for every £2 of adjusted net income over £37,000 (£34,600 for 2023/24), until the minimum is reached.

** Not available if taxable non-savings income exceeds the starting rate band.

* Scottish Budget to be published on 19 December 2023.

National insurance contributions

Class 1

* Applies from 6 January 2024. 12% between 6 April 2023 and 5 January 2024.

†No employer NICs on the first £967 pw for employees generally under 21 years, apprentices under 25 years and veterans in first 12 months of civilian employment. No employer NICs on the first £481 pw for employees at freeports in Great Britain in the first three years of employment.

Not available if the sole employee is a director or if employer’s NICs for 2023/24 are £100,000 or more.

Class 1A Employers

Class 2 Self-employed

Class 4 Self-employed

Voluntary