Topical Issues

The Autumn Statement.

THERE were no surprises in Jeremy Hunt’s first Autumn Statement. Which after the unwelcome excitement triggered by its predecessor in September was just what the doctor ordered.

The principal ask of the Chancellor was that he reassures the markets that the grown-ups are back in charge. On that front, he delivered. He came across as a serious but kind headmaster. This is going to hurt me more than you.

The second goal was to fill a £55bn fiscal shortfall so that the government can point to falling debts as a proportion of the overall economy in five years’ time. He has achieved that with the added benefit from a political perspective that the bulk of the pain will be felt towards the end of the period, after the next election.

They say that the art of taxation is to extract the maximum number of feathers from the goose with the minimum amount of hissing. If that was his aim, the Chancellor can be well satisfied.

The fiscal consolidation was targeted, as expected, at those with the broadest shoulders. In practice that means that the bulk of the tax rises will be paid by big businesses. The extension of the windfall tax on energy companies, from 25% to 35% and a 45% levy on electricity generators will raise £14bn next year alone.

Higher earners were targeted as predicted, but most will be relieved that the measures were limited to an extra £100 a month of income tax for those earning more than £150,000 a year, and relatively manageable increases in capital gains and dividend taxes.

The cut in the Capital Gains Tax (CGT) allowance from £12,300 to £6,000 next year and then to £3,000 is unwelcome for those unable to shelter their gains but it is massively less unpleasant than the nuclear option of aligning the capital gains and income tax bands. Gains are still treated extremely favourably, with a higher rate of 20% (28% for property).

Tax-free dividends will largely be a thing of the past outside of ISAs and SIPPs, with the already much reduced £2,000 allowance to be halved in both of the next two years.

The incentive to maximise the use of tax-free allowances is slightly increased but the personal taxation changes are unlikely to cause anyone to seriously rethink their approach to saving and investing.

As expected, stealth taxes are doing the heavy lifting. By freezing taxation thresholds for another two years, many more people will be dragged into higher rate tax bands. Many of them will not consider themselves higher earners. The numbers captured in this way have risen dramatically over the years.

The freezing of the inheritance tax nil-rate band has also been extended for two more years to 2028 and this allowance continues to fall well behind increases in the value of estates.

Sound money with a compassionate face was the key message. So slightly more than half of the fiscal retrenchment is accounted for by spending cuts, although education and the NHS unsurprisingly are exempt from the squeeze. The triple lock remains in place.

The decision to curtail the stamp duty reductions in 2025, may well distort the housing market a bit at the margin. To the extent that this actually changes house purchase decisions (which is questionable), the imposition of the deadline in three years’ time might give the market a small boost. But it is likely to be outweighed by higher mortgage rates in the meantime.