The Chancellor, Jeremy Hunt, has shared an update on the country’s finances and the government’s plans for tax and public spending, alongside the latest forecasts from the Office for Budget Responsibility (OBR).
Here, we explain what’s going to change and when, and the implications of those decisions for individuals, business owners and families.
National insurance cuts will boost take-home pay
From 6 January 2024, the government is reducing employee national insurance (NI) contributions by two percentage points – from 12% down to 10%. According to the Treasury, this amounts to a £450 tax cut for the average worker earning £35,400.
Measures like this would usually be introduced at the start of the new tax year, but Hunt is pushing through “urgent legislation” to bring this cut in sooner, meaning we’ll keep more of our wages from the start of the new year.
For self-employed workers, Class 4 NI contributions will be reduced by 1% and Class 2 NI contributions will be scrapped completely from April 2024. This means that small business owners, freelancers and ‘one-man bands’ will keep more of what they earn – a welcome change for many in the current cost of living crisis.
For the time being, however, income tax thresholds remain frozen. This means that as wages rise, many workers will see a greater proportion of their salary deducted in tax.
State pension triple lock protected
For those receiving the state pension, or approaching retirement, the Chancellor’s announcement that he will honour the state pension triple lock in full despite rumours a lower figure may have been used will come as a welcome relief.
The full new state pension will rise by 8.5% to £221.20 a week from April next year, providing £900 of additional annual income – a lifeline for those relying on their state pension as their sole source of income.
Hunt has also set the wheels in motion for a consultation next year which could see a reform to pension policy, whereby workers will be able to nominate a pension scheme that their employer can contribute to, paving the way for ‘one pot for life’.
Reforms to welfare and income support
Universal Credit and other benefits will increase by 6.7% next April, in line with September’s inflation, providing an extra £470 for 5.5 million lower-income households.
But there is a sting in the tail for those currently in receipt of benefits but who are deemed able to work.
The government plans to invest £1.3 billion in support for people who have been unemployed for over a year, without sickness or disability, to find employment. After 18 months, job seekers will have to take part in mandatory work placements to improve their skills. Anyone who does not engage in this process for six months can expect their benefits to be stopped.
Hunt also announced planned reforms to the fit note and work capability assessment process, accounting for greater flexibility and availability of home working in the job market, aiming to get more of the 700,000 unemployed people with health conditions into a job.
A boost to the National Living Wage
From April 2024, the National Living Wage will increase from £10.42 an hour to £11.44 an hour.
For the first time, 21- and 22-year-olds will also be covered by the National Living Wage, which has previously applied to workers aged 23 and older.
The minimum wage was first introduced in 2016. Yesterday’s announcement confirmed the biggest rise in more than a decade. The increase next spring represents a rise of more than £1,800 a year for a full-time worker.
Changes for tax-free savings (ISAs)
The Treasury announced its rumoured ‘simplification’ of ISAs, but there won’t be any immediate changes.
Currently, you have an ISA allowance of £20,000 every tax year that you can either pay into one ISA or you can split your allowance across several different types of ISA, such as stocks and shares, cash and the Lifetime ISA (LISA) (you can only put up to £4,000 of your allowance into a LISA).
At present you are only allowed to open one type of ISA each tax year, but from April 2024, you will be able to open multiple ISAs of the same type each tax year.
You will also be able to make partial transfers between ISA providers in the same tax year from April 2024. At the moment, if you want to transfer money that you’ve contributed in the current tax year, you have to transfer the whole balance.
These measures could increase competition among providers, who may start improving the interest rates on offer, encouraging cash ISA savers to bank with them.
While the benefits of having multiple stocks and shares ISAs aren’t as clear, it could allow savers to try out different fund platforms or access investments that aren’t available through their chosen, existing provider.
Support tackling high housing costs
The Autumn Statement shed little light on any government plans to make homeownership more affordable, although we know that the mortgage guarantee scheme is being extended to June 2025, to enable first-time buyers to get on the property ladder with a 5% deposit.
There is good news for renters, though, as the Local Housing Allowance rate is now set to increase to the 30th percentile of local market rents.
Hunt said: “Because rent can constitute more than half the living costs of private renters on the lowest incomes I have listened closely to many colleagues as well as the Institute for Fiscal Studies and the Resolution Foundation, Citizens Advice UK and the Joseph Rowntree Foundation who said that unfreezing local housing allowance was an urgent priority.”
Tax cuts for small businesses
The Chancellor had good news for small businesses, as well as consumers, reiterating his commitment to removing red tape, supporting entrepreneurs and encouraging investment in UK companies to ensure our country remains innovative and competitive.
He announced an extension of the 75% business rates discount for retail, leisure, and hospitality businesses, meaning that the average British pub could save £12,000 per year. This, combined with a freeze on alcohol duty, should help inject some cash into local communities.
Tackling late payments remains on the government’s agenda, as does boosting investment in homegrown start-ups. The biggest headline for UK businesses is that “full expensing” is being made permanent. This means that all money a company invests in plant and machinery, or IT equipment, is tax deductible.
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