Chancellor Jeremy Hunt had been under intense pressure from fellow Conservatives to deliver a tax-cutting Autumn Statement that showed the party was responding to voters’ financial struggles.
Hunt had warned in recent weeks that the UK could not afford to cut taxes, even as a general election looms next year. In the event, he said that better than expected public finances allowed him to help individuals, with cuts to national insurance contributions and a boost to the state pension.
However, the overall rise in the tax burden was made clear in analysis by the Office for Budget Responsibility. “While personal and business tax cuts reduce the tax burden by half a percentage point, it still rises in each of the next five years to a post-war high of 38 per cent of GDP,” the OBR said.
Here is our summary of how the key measures will affect your personal finances:
Tax
The chancellor cut national insurance contributions for both employed and self-employed people. He announced that from April 2024, the government would abolish class 2 national insurance contributions, which are paid by the self-employed at a flat rate of £3.45 a week. The move will benefit about 2mn people.
He also announced a 1 percentage point drop on class 4 NICs, which are currently paid at 9 per cent on profits between £12,570 and £50,270. From April 2024, this would fall to 8 per cent, Hunt said. The tax cuts will be worth an average of £350 for a self-employed person earning £28,200 a year.
There were also cuts in NICs for employees. The national insurance rate paid on earnings of between £12,570 and £50,270 will fall by 2 percentage points from 12 per cent to 10 per cent.
This would save someone on an average salary of £35,000 about £450 a year. Hunt planned to introduce emergency legislation to bring this in on January 6. The measure would benefit around 27mn people, he said.
Pensions
Hunt unveiled a shake-up of the pensions system aimed at giving workers greater control over where they build their retirement funds.
Pension savers are to be given the legal right to ask their employer to pay into a retirement fund of their choice under the changes.
Hunt announced the changes alongside plans to give the UK pensions lifeboat fund a new role as a consolidator of small corporate pension schemes.
Under the plans, by 2030 the majority of workplace pension savers would be in funds of £30bn or larger, signalling a big shift in the pensions market.
Experts said the proposal could tackle the problem which has developed as a result of savers switching jobs throughout their careers and accumulating multiple small pension pots which are then difficult to track down later in life.
“Pot for Life can potentially resolve this problem, cap off the flow of new small pension pots and reduce the need for so many pension transfers,” said Tom McPhail, director of public affairs at consultants The Lang Cat, a financial services consultancy.
Worries over the “triple lock” uprating of the state pension were mollified after Hunt said the government would put through an 8.5 per cent rise in the state pension. The triple lock commits ministers to raise the state pension by whichever is highest of average earnings growth, CPI inflation or 2.5 per cent.
Investment
Individual savings accounts (Isas) will be overhauled to enable savers to pay into multiple accounts of the same type for the first time next April, while the current £20,000 tax-free allowance will remain unchanged.
Rules will also be altered to enable savers to invest in long-term asset funds, a type of open-ended fund invested in illiquid assets including private equity and real estate. Proposals to incorporate fractional shares will feature in a wider consultation.
Hunt also announced that the government would consult in the next year on a potential retail sale of its share of NatWest Group, “subject to supportive market conditions and achieving value for money”. The government has previously committed to exiting the investment fully by 2026.
The government bailed out the bank during the financial crisis, becoming its majority shareholder in November 2008. It has since sold off tranches of ordinary shares, most recently in May 2023.
NatWest group’s share price has fallen 25 per cent this year, in part following the controversy surrounding Nigel Farage’s Coutts account that led to Dame Alison Rose’s resignation as chief executive in July.
The government said it would extend the tax advantages of venture capital trusts and the enterprise investment scheme by 10 years to 2035. VCTs and EIS fell foul of EU state aid rules; the extension follows a post-Brexit government inquiry into the venture capital market.
Some investors welcomed the extension, while lamenting it did not go far enough. “A bolder move would have been to increase the income tax credits for investing in VCT new shares from 30 per cent to 40 per cent — a level they were at in 2005-06,” said Jason Hollands, managing director of broker Bestinvest.
Property
For homeowners, the chancellor said the government would consult on new rules to allow any house to be converted into two flats, provided the exterior was unchanged, as part of a raft of measures “to unlock the building of more homes”.
The government also said it would unfreeze the local housing allowance to help families with the cost of living. Hunt said the local housing allowance would rise, delivering an average increase of £800 for 1.6mn households.
The UK has faced record rent increases this year. The chancellor said: “‘Rent can constitute half the living cost of private renters on the lowest incomes.”
The local housing allowance is used to calculate housing benefit for tenants renting from private landlords. The rates have been frozen since 2020, while rents have risen by almost a third.
Low pay and other measures
The national living wage for workers aged 21 and above will increase to £11.44 per hour from April next year. Announced on Tuesday, the rise represents a 12.4 per cent jump for those aged 21-23 and 9.8 per cent for those aged over 23. For 18- to 20-year-olds, the hourly rate will rise by £1.11 to £8.60 per hour.
Universal credit and other benefits will be increased by 6.7 per cent, in line with September’s inflation figures. This means that 5.5mn households on universal credit will gain £470 on average in 2024 and 2025.
Households living near new transmission infrastructure could be offered money off their energy bills of up to £10,000 over 10 years.
The chancellor said the government would freeze alcohol duty until August 2024.
Reporting by: Emma Agyemang, Josephine Cumbo, Martha Muir, Arjun Neil Alim, Joshua Oliver, Rafe Uddin