The Autumn Statement

With the dust settling on the Autumn statement, I feel now is a good time to do this update.

As I have said previously, the main point for me out of this statement were the things not being commented on or altered.

I was extremely happy to see no changes with regard, income, inheritance, and capital gains taxes.   

Rumours had been circling that these would be tinkered with so them all being left alone is very welcomed.

There were also no changes to pension, lifetime allowances and tax relief. So again, a very good outcome.

The worrying part moving forward is that all these areas will be under microscope and there remains a very good chance in this parliament these will change.

One thing that might catch some younger readers out is that from 2028 you must be 57 to access your pension planning. That’s a change from the current 55 and will fall in line with the state retirement age for all moving to 67 then.

The statement overall is toward growth and that does and will remain the theme for the UK as we continue to recover the slowest of the developed nations.

So, what does potentially affect our planning?

The personal allowance, basic and higher rate limits have all been frozen at £12,570, £37,700 and £150,000 respectively until April 2026.

Similarly, the Inheritance tax nil rate band, Capital Gains Tax Annual exempt amount and pensions lifetime allowance will be frozen until April 2026.

National Insurance Contributions – the previously announced 1.25 percentage point increase (to fund social care prior to the introduction of the separate Health and Social Care Levy) becomes effective from 6 April 2022.

All the above does mean as wages rise, we do not see more pounds in our pocket as these allowances will not be increased.  Some would call this a stealth taxation approach as we will not see this affect us like a percentage increase on these taxes.

The changes surrounding dividend taxation will affect some people with income being taken that route from business or investments.

The £2,000 allowance will remain unchanged but the rate of tax applied is increasing.

The new rates of 8.75% for a basic rate payer, 33.75% for a higher rate payer and 39.35% for an additional rate payer come into effect in April 2022.

This is an increase from the current 7.5%, 32.5% & 38.1%.

The living wage being increased to £9.50 from April 2022 will add further pressure on businesses and profit margins. This is a 6.6% increase, and one in which could see some private industry have to take a small step backwards just at a time where we need moves forward. 

As investors we want to see profits from the businesses we are invested within, and this will add pressure on the domestic market for sure.

I fully support the increase and the direction of the living wage, and it should provide better for lower earners, but it will add pressures for business.

The triple lock on the state pension is being suspended for one year and this could well be on the cards again in the future.

What is the triple lock and how does it work?

At present, the state pension is supposed to increase each year in line with whichever of the following three things is highest:

  • inflation, as measured by the Consumer Prices Index (CPI)
  • the average wage increase
  • or 2.5%

This is known as the triple lock.

The worry here is that the increase could have been unaffordable next year so suspending this for a year will take some pressure off the government. Therefore, the state pension will increase by 2.5% in 2022/23.

Overall, the statement could have been harder to swallow but really there is little else to concern us for now and we have the 200-page document if any of you want a copy.

Yes, these things will make an impact, but things really could have been much worse (forever the optimist here).  

The expected central base rate increase didn’t come last week, and the Bank of England is now stating that 5% inflation is a clear milestone to hit in the very near future.

Not new news as you will all agree, but I feel the markets where pricing for an increase and this not coming caught them out.

This will come in December with some areas suggesting 0.15% increase. This would then take us to a 0.25% base rate, still extremely low.

The US Fed stating their intent means we will see a tapering of support from December with it ceasing mid 2022. This then will force other nations to flow suit as we all try and move back toward a more normal day to day existence living with Covid.

I expect a bumpy road in the coming weeks leading to Christmas and I would not be surprised to see some small backwards steps with regard values.

It’s natural to see the markets take these steps backwards at times and we will always judge this by looking toward the bigger picture.

The year to date remains quite positive overall and the UK still has room for recovery. How fast and how sustainable this will be is the one part I feel we will all be looking toward.

Good luck with the Christmas shopping as the “just in time” logistics struggle to meet demand with a continued container shortage and increased fuel costs push prices higher and longer to hit our shores.

As always, we are here to support you any way we can and if you read this and have any questions at all, please just get in touch.