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‘110 policies’ to boost growth

The financial planner’s perspective

Don’t worry we won’t list them all here! More significant to note is what was absent from the list as despite the hype and media speculation there was no mention of cuts to inheritance tax or any significant change on the pensions front that we didn’t already expect.

In the light of the Office of Budget responsibility report that is perhaps no surprise as the government could not risk a repeat of the turmoil that followed the Truss / Kwarteng Budget last year. It may be they are hoping for more “wriggle room” in future and plan to pull a rabbit or two out of the Budget bag then but for now from a financial planning perspective there is little of note for our clients.

Here’s a roundup of some of the financial planning points:

The state pension triple lock rise of 8.5 per cent was confirmed which is on the back of increases of 10.1% in 2023 and 3.1% the year before – welcome news for all in receipt of state pensions.

ISA allowances remain frozen but and the age for opening an adult (max £20,000) cash ISA has increased to 18 in line with the investment ISA rules so the junior cash ISA limit of £9,000 prevails. Contributions to more than one ISA of the same type will be allowed from April 2024 and partial transfers of funds between ISA’s will also be allowed useful for those wanting to take advantage of better rates on cash elsewhere. Allowing cash or investments within the one ISA would have been even more useful though as the range of options is still far too complex and off putting especially for new savers.

Pensions lifetime allowance – After a year of work to remove thousands of references to the lifetime allowance from the statute books, it’s abolition was confirmed from April 2024 without a squeak from the opposition this time. In practice it has been effectively gone since the Spring Budget 2023 when the lifetime allowance charge was reduced to zero, however the rules remain fraught with complexity and we await the finance bill for more detail and to see whether changes to pension scheme death benefits are on the cards. We will keep clients briefed as the finer details are mapped out.

Autumn statement

Lower inflation, borrowing and debt… but also longer-term growth.

The economic perspective

The Chancellor’s statement sounded fairly upbeat about the prospects for the UK economy over the coming years, but that is set against a period of relative weakness. The longer-term growth projection was actually revised down by the OBR to an annual average of 1.5% through to 2027, from 2.1% in March.

The reality is whilst the foundations for economic growth in the UK are there i.e. knowledge, skills and infrastructure, the difficult part is unlocking this potential given the chronic reduction in the labour force, weak productivity and the strained state of the public finances.

The Prime Minister has met his ambition to half inflation, with CPI coming in at +4.7% year on year in October, with the Chancellor graciously crediting the Bank of England for their part – how much the government influenced the reduction is questionable, but the OBR supports the projection that inflation will fall back to the 2% target by 2025. This is unarguably good news from an economic point of view to regain stability in prices.

The positive moves of reducing national insurance rates and making certain business investment fully tax-relivable has the potential to positively impact growth, but the headroom that has allowed these steps has only been possible by increased tax receipts as a result of undesirably high inflation, and the freezing of tax thresholds and allowances.

Looking through the political positioning, the projections painted by the Chancellor could easily be disrupted by even a minor swing in the assumptions for inflation and/or growth and there seems little further room for manoeuvre. John Calverley of our economic consultants Tricio suggests:

“Weak growth and higher taxes mean that living standards (defined as real household disposable income after tax) will still be about 3.5% lower in 2024-25 than before the pandemic. In this environment it is not surprising that the government is unpopular and people are rather pessimistic about economic conditions.”

The ongoing cost of living crisis, still firmly in place despite falling inflation, and higher interest rate payments on the national debt all seem to point to risks that the economic projections made are at risk. As real spending on public services comes further under pressure, the discontent amongst society is likely to grow, perhaps strengthening the desire for change. The Institute for Fiscal Studies (IFS) commented:

“Past experience strongly suggests that when Chancellors come to actually dividing the spending pot up between departments, they decide that the pot needs to be bigger after all, and announce a top-up. If history were to repeat itself, that would represent a threat to the public finance forecasts – and potentially mean that today’s tax cuts might not prove to be sustainable.”

Political change might be on the cards, but that doesn’t alter the financial position. Which ever party becomes the next government has to contend with an unsustainable position, with the tax burden relative to GDP currently on a war-like footing and potentially having to become worse. The headwinds for the UK economy are not going away anytime soon.

Office of Budget responsibility outlook

As always if you have any queries or concerns about your own financial planning or if there is anyone else who needs guidance in your world please do not hesitate to contact us.