Autumn Statement 2022

“We will face into the storm”

On 17 November, Chancellor of the Exchequer Jeremy Hunt delivered his fiscal plan to “tackle the cost-of-living crisis and rebuild our economy” stating that the government’s three priorities are “stability, growth and public services.” The Chancellor struck a defiant tone during the key fiscal event, saying he was “taking difficult decisions” that would deliver a “balanced path to stability” before outlining a package of measures equating to a consolidated total of around £55bn in spending cuts and tax rises.

Economic forecasts

Mr Hunt began his statement by stressing that the country is facing “unprecedented global headwinds” before unveiling updated economic projections from the Office for Budget Responsibility (OBR) which confirm the UK is now officially in recession. The Chancellor did, however, point out that the independent public finance analyst believes the downturn will be relatively shallow, if comparatively long. The revised GDP figures suggest the UK economy will grow by 4.2% this year, but then shrink by 1.4% next year before returning to growth in 2024.

The Chancellor also announced revised OBR forecasts which suggest inflation will peak in the current quarter and then drop sharply over the course of next year. The OBR’s updated forecast though does suggest the eroding impact of inflation will reduce living standards by 7% over the two financial years to 2023-24, wiping out the previous eight years’ growth, while unemployment is expected to rise from 3.6% today to 4.9% by the third quarter of 2024.

Public finances

During his speech, Mr Hunt announced he was introducing two new fiscal rules and that the plan he was announcing met both of them. His first rule states that underlying debt must fall as a percentage of GDP by the fifth year of a rolling five-year period, while the second states that annual public sector borrowing, over the same time period, must be below 3% of GDP.

The Chancellor went on to reveal updated public finance forecasts, which predict government borrowing in the current fiscal year will rise to £177bn before falling back to £69bn (2.4% of GDP) in 2027-28. This means the medium-term fiscal outlook has materially worsened since the previous OBR forecast produced in March, which had predicted borrowing of £32bn by 2026-27. The OBR said this deterioration in the public finances was due to a weaker economy, higher interest rates and higher inflation.

Personal taxation, wages and pensions

The Chancellor went on to make a raft of key personal taxation, wages and pension announcements.

The government will increase the National Living Wage for individuals aged 23 and over by 9.7% from £9.50 to £10.42 an hour, effective from 1 April 2023.

The commitment to the pensions Triple Lock remains, which will increase the State Pension in line with September’s Consumer Prices Index (CPI) rate of 10.1%. This means that the value of the basic State Pension will increase in April 2023 from £141.85 per week to £156.20 per week, while the full new State Pension will rise from £185.15 to £203.85 per week.

The Income Tax additional rate threshold (ART) at which 45p becomes payable will be lowered from £150,000 to £125,140 from 6 April 2023. The ART for non-savings and non-dividend income will apply to taxpayers in England, Wales and Northern Ireland. The ART for savings and dividend income will apply UK-wide.

The Dividend Allowance will be reduced from £2,000 to £1,000 from April 2023, and to £500 from April 2024.

The annual Capital Gains Tax exemption will be reduced from £12,300 to £6,000 from April 2023 and then to £3,000 from April 2024.

The change to Stamp Duty Land Tax threshold for England and Northern Ireland, which was announced on 23 September 2022, remains in place until 31 March 2025. The nil rate threshold is £250,000 for all purchasers and £425,000 for first-time buyers.

In addition:

  • The Income Tax Personal Allowance and higher rate threshold are to remain at current levels – £12,570 and £50,270 respectively – until April 2028 (rates and thresholds may differ for taxpayers in parts of the UK where Income Tax is devolved)
  • Inheritance Tax nil-rate bands remain at £325,000 nil-rate band, £175,000 residence nil-rate band, with taper starting at £2m – fixed at these levels for a further two years until April 2028
  • National Insurance contributions (NICs) Upper Earnings Limit (UEL) and Upper Profits Limit (UPL) frozen for a further two years until April 2028
  • The 2022-23 tax year ISA (Individual Savings Account) allowance remains at £20,000 and the JISA (Junior Individual Savings Account) allowance and Child Trust Fund annual subscription limits remain at £9,000
  • The Lifetime Allowance for pensions remains at its current level of £1,073,100 until April 2026.

Business measures

  • The National Insurance Secondary Threshold is frozen at £9,100 until April 2028
  • The VAT registration threshold is fixed at £85,000 for two years from April 2024
  • R&D tax credits to be reformed to ensure public money is spent effectively and best supports innovation
  • Businesses making extraordinary profits due to external factors are required to contribute more, including those in the oil and gas sector – the Energy Profits Levy is now extended to the end of March 2028, and the rate is increased by 10 percentage points to 35% from 1 January 2023
  • A new temporary 45% levy will be introduced for electricity generators from 1 January 2023
  • A package of targeted support to help with business rates costs worth £13.6bn over the next five years
  • The Annual Investment Allowance (AIA) is to be set at its highest ever permanent level of £1m from 1 April 2023.

Cost-of-living support

The Energy Price Guarantee (EPG) per unit will be maintained through the winter, in effect limiting typical energy bills to £2,500 per year. From April 2023 the EPG will rise to £3,000 per year, ending March 2024. The government will double to £200 the level of support for households that use alternative fuels, such as heating oil, liquefied petroleum gas, coal or biomass.

The Chancellor announced that there will be targeted cost-of-living support measures for those on low incomes, disability benefits and pensions. In 2023-24 an additional Cost of Living Payment of £900 will be provided to households on means-tested benefits, £300 to pensioner households and £150 to individuals on disability benefits. Rent increases in the social housing sector will be capped at 7% in the next financial year.

Education, health and social care

To promote education and boost the UK’s health and social care system, Mr Hunt announced:

  • An additional £3.3bn per year for the NHS in the 2023-24 and 2024-25 tax years
  • Up to £2.8bn in 2023-24 and £4.7bn in 2024-25 for the social care sector
  • An additional £2.3bn per year for England’s core schools budget in 2023-24 and 2024-25
  • An extra £1.5bn, £1.2bn and £650m have been pledged for hospitals and schools in Scotland, Wales and Northern Ireland, respectively.

Priorities for growth

Next, the Chancellor moved on to outline his three priorities for economic growth: energy, infrastructure and innovation. Key announcements included:

  • A new Sizewell C nuclear power plant in Suffolk
  • New funding of £6bn from 2025 to meet the government’s objective to reduce energy consumption from buildings and industry by 15% by 2030
  • Northern Powerhouse Rail and HS2 to go ahead as planned
  • A commitment to proceed with round two of the levelling up fund, at least matching the £1.7bn value of round one
  • The removal of import tariffs on over 100 goods used by UK businesses
  • An increase in public funding for R&D to £20bn by 2024-25.

Other key points

  • Vehicle Excise Duty chargeable on electric cars, vans and motorcycles from April 2025
  • Local authorities in England given additional Council Tax flexibility by modifying the referendum limit for increases
  • Review of the Energy Bill Relief Scheme, findings to be published by 31 December 2022
  • The Secretary of State for Work and Pensions will publish the government’s Review of the State Pension Age in early 2023
  • Defence spending to be at least 2% of national income
  • Overseas aid spending to be kept at 0.5% for next five years.

Closing comments

Jeremy Hunt signed off his announcement saying,“There is a global energy crisis, a global inflation crisis and a global economic crisis, but the British people are tough, inventive and resourceful. We have risen to bigger challenges before. We aren’t immune to these headwinds but with this plan for stability, growth and public services, we will face into the storm… I commend this statement to the House.”

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor.

All details are believed to be correct at the time of writing (17 November 2022)

Mortgage market update

It’s been a busy couple of months in the mortgage market, with rising interest rates and new product ideas dominating the discussion.

Rate rises

Following the Bank of England’s decision to raise interest rates, two million mortgage holders with standard variable rates or tracker mortgages are already facing higher repayments.

Bank Rate increases will also impact those with fixed-rate contracts, many of whom will face higher costs when their current deal ends. Although 83% of existing mortgage holders are on fixed-rate contracts, almost a third have short agreements of up to 24 months1.

Fifty years

How would you feel about repaying your mortgage for fifty years? Ultra-long mortgage deals are one of the government’s proposed solutions to help more people own a home. The plan would help more people build equity rather than paying rent, with a longer mortgage period allowing larger sums to be borrowed.

Here to advise

We’re on top of all the breaking news and new ideas. With so much happening right now, getting the right advice is more important than ever. Wherever your property journey is heading, we’ll help you navigate the choppy waters.

1Bank of England, 2022

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments

IHT share loss relief – tune in

In challenging market conditions, it’s likely that some bereft individuals will inherit investments that have fallen in value.  

Through IHT share loss relief, people inheriting can be entitled to claim a tax rebate when they sell certain qualifying investments at a loss. Strict rules, criteria and exemptions apply however. For example, to be eligible for the relief, the sale of the qualifying investment (shares listed on a recognised stock exchange excluding AIM, government bonds and/or holdings in investment funds) has to be within 12 months of the date of death. Interestingly, according to recent data1, few people reclaim the overpaid tax, with just 1,640 taxpayers a year on average (between 2014 and 2019) applying for refunds. 

1FoI request Boodle Hatfield, 2022 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. The Financial Conduct Authority (FCA) does not regulate Will writing, tax and trust advice and certain forms of estate planning. 

News in Review

Last week’s release by the Office for National Statistics (ONS) of its quarterly gross domestic product (GDP) estimate for July to September painted a picture of a shrinking UK economy.

GDP fell by 0.2% in the third quarter, slightly less than predicted by some City economists, but enough to push the UK a step closer to recession. The Bank of England has forecast a ‘prolonged’ downturn, potentially the longest on record.

The Q3 economy slowed in output terms, with the services, production and construction industries all stalling. Notably, production fell by 1.5%, with all 13 sub-sectors of the manufacturing sector negative for the quarter.

Meanwhile, real household expenditure fell by 0.5%. High inflation has caused many households to cut back on spending, which in turn creates a drag on the economy.

Chancellor Jeremy Hunt said, “I am under no illusion that there is a tough road ahead – one which will require extremely difficult decisions to restore confidence and economic stability… What we need is a plan that shows how we are going to get through this difficult period.”

Autumn Statement – what’s in store?

In response to these difficult economic conditions, the government is expected to announce around £35bn of spending cuts and £20bn of tax rises in the Autumn Statement, due to be delivered on Thursday.

Speaking last Sunday, Mr Hunt stressed that, “I’ve been explicit that taxes are going to go up.” Analysts predict that the extra tax revenue will be generated by freezing tax thresholds.

A decision on pensions is expected too. New Prime Minister Rishi Sunak has not yet confirmed whether the Triple Lock, which ensures the State Pension rises each year in line with the highest of either inflation, average earnings or 2.5%, will remain in place.

The NHS, schools and police could all be affected by spending cuts, with budgets allocated in 2021 expected to be frozen until 2025.

US midterms

Democrats have kept control of the Senate in a better-than-anticipated midterms performance for the ruling party. The Senate success is a significant moment for Joe Biden’s presidency, which will put a spring in his step going into the second half of his term. The Republicans, meanwhile, are on the verge of securing the House of Representatives.

COP27 enters its final days

The UN’s annual climate summit continued in Egypt, with more tough talking from politicians and stakeholders. Fresh from his election success, Mr Biden delivered a speech in which he said, “The climate crisis is about human security, economic security, environmental security, national security and the very life of the planet.”

The key outcomes of the conference remain to be agreed, however, as the two-week event enters its final days. Perhaps most importantly, discussions are ongoing about watering down the target of limiting the average global temperature rise to 1.5 degrees Celsius. This is the level, according to climate scientists, above which the worst consequences of climate change will be felt.

Employment data

The UK unemployment rate rose slightly to 3.6% in the three months to September, Office for National Statistics data revealed on Tuesday. The Bank of England has already warned that unemployment will nearly double by 2025 as the UK enters recession.

Wages rose by 5.7% in the year to September, the fastest rate (excluding the pandemic) in more than 20 years. Adjusted for rising prices, however, the picture looks less rosy, with real wages falling by 2.7%.

London stock market loses top spot

London has lost its crown as Europe’s biggest stock market to Paris as economic growth concerns weigh on UK assets. Paris has taken the top spot after the combined market capitalisation of its major share exchanges overtook those in the UK capital. According to data from Bloomberg the combined value of British shares is now around $2.821trn (£2.3trn), while France’s are worth around $2.823trn.

This marks a huge reversal of fortunes for the London Stock Exchange, which was worth about $1.4trn more than its French rival back in 2016.

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

Trending – ‘living legacies’

Over-55s are increasingly looking to help their families out financially while they are still alive, rather than leaving everything in the form of an inheritance. Research1 has revealed a trend towards ‘living legacies’, due to increased life expectancy pushing up the average age at which younger generations inherit from their parents. People born in the 1980s are now predicted to receive their inheritance at age 64 on average, compared to 58 for those born in the 1960s.

Historically, the risk of running out of money during retirement has prevented many older people from offering financial support during their lifetime. This concern appears to be lessening, however, with a third of researchers’ respondents saying they’d be unwilling to help a family member onto the property ladder without knowing how much they’d need in retirement – against half of respondents to the same survey in 2016.

Aviva’s Matt McGill commented, “This increasing tendency towards considering helping out now rather than beneficiaries receiving an inheritance after death is perhaps a reflection of the turbulence and uncertainty that everyone has been through since we previously ran our survey in 2016, and which shows no sign of diminishing. Along with the hardship people have faced, it’s also been a time of reflection for many and this could have included a resolution to live more for the moment and help family and loved ones now.”

1Aviva, 2022

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

Selling with success

Planning to sell? You already know there’s a lot of big things to think about. But don’t neglect the small details either.

Seemingly minor changes can make a significant difference to how a property is perceived and, ultimately, its sale price. Here are three top tips for putting the finishing touches to your home before listing it for sale.

1. Appearances count

If you’ve been putting off any DIY tasks, now might be the time to finally get them done! Presenting a well-maintained property shows prospective buyers that the house has been well cared for, which will reassure them that there won’t be any nasty surprises. In contrast, if buyers notice obvious DIY shortfalls, they’ll factor the costs of carrying these out into their offer price.

2. Lose the quirks

It’s a good idea to remove some of the more personal objects and displays around your home. Without making it feel like an empty white box, you can help prospective buyers better imagine themselves living in your house by taking away your most glaring quirks.

3. Define rooms

Over time, rooms can end up evolving away from their original purpose – intentionally or not. This is normal but when it comes to selling, clarity is key. If the spare bedroom has become a storage depot, converting it back to its original purpose can help showcase the space and market the house more effectively.

Big and small

Having someone on your side to help with the big decisions can help you stay in control of every little detail. Get in touch, we can help.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments

News in Review

“The road ahead will be a tough one… but the economy will recover, and inflation will fall”

At the latest meeting of the Bank of England’s Monetary Policy Committee (MPC) concluding on 3 November, Bank Rate rose by 0.75 percentage points, an eighth consecutive increase and the biggest for 33 years.

Members of the MPC voted by a majority of seven to two to raise Bank Rate to 3%; of the two dissenting voices, one preferred an increase of 0.5 percentage points and the other a smaller 0.25 percentage point rise. Borrowing costs are now at their highest since 2008.

After the vote, Andrew Bailey, Governor of the Bank of England, repeated that the Bank’s primary objective was to bring down inflation, which last month rose at its fastest rate in 40 years. He commented, “The road ahead will be a tough one… The level of economic activity in our economy is likely to be flat, and even fall, for some time but the economy will recover, and inflation will fall.”

Indeed, the MPC is forecasting that gross domestic product (GDP) will continue to fall throughout 2023 and into 2024, while unemployment – currently at its lowest level for 50 years – is set to almost double to 6.5%. Latest projections by the MPC reveal ‘a very challenging outlook for the UK economy’, with recession ‘for a prolonged period’. The minutes of the next MPC meeting will be published on 15 December 2022.

Similar story across the pond

A day earlier, the US Federal Reserve also raised its key interest rate by 0.75%, a fourth consecutive three-quarter point rise. Now at a target range of 3.75% to 4%, the highest level since 2008, the rate hikes seem likely to continue. Indeed, speaking shortly after the meeting, Chairman Jerome Powell signalled that the Fed’s work is far from finished, “We still have some ways to go and incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected.”

In the same speech, however, Mr Powell suggested easing off on the pace of rises might be possible sooner rather than later, “It may come as soon as the next meeting [in December] or the one after that … No decision has been made” he added.

COP27 underway in Egypt

As the COP27 summit kicked off in Egypt, the United Nations Secretary General, António Guterres, used his opening address to warn that, “We are on a highway to climate hell with our foot still on the accelerator.”

On Monday, world leaders descended on the Egyptian city of Sharm El-Sheikh to begin two weeks of negotiations on climate action. Prime Minister Rishi Sunak, having U-turned on his decision not to attend the conference, spoke about the importance of energy security, “Putin’s abhorrent war in Ukraine and rising energy prices across the world are not a reason to go slow on climate change” he said. “They are a reason to act faster.”

More stark words came from the Kenyan President William Ruto, who stressed the need for rapid action, “Further delay will make us busy spectators as calamity wipes out lives and livelihoods” he said.President Joe Biden is expected to attend later this week after the US midterm elections.

A major talking point of the opening days of the summit was the decision to include ‘loss and damage’ on the agenda. After negotiations that dragged on until Sunday morning, developing countries finally got their way; the possibility of reparations paid by rich countries for the impacts of climate change will now be officially discussed at COP for the first time.

Markets

Tuesday’s primary focus for markets was on the crucial US midterm elections that will determine control of Congress. London stocks closed just above the waterline, with the FTSE 100 ending the session up 0.08% at 7,306.14 and the FTSE 250 closing ahead 0.75% at 18,697.89.

Wall Street ended the day higher, with investors betting on a political stalemate that could prevent major policy changes. It was the third straight day of gains on the US stock market, leaving the Dow Jones down less than 10% year-to-date, to close on 33,160.83. The S&P 500 was 0.56% firmer at 3,828.11.

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

All details are correct at time of writing (9 November 2022)

Climate change for investors

As the world continues to emerge from the pandemic, although other headwinds exist, governments, businesses and the financial world are refocusing on what the Principles for Responsible Investment (PRI) describe as ‘the greatest threat to the wellbeing of humanity and to the ecosystems on which we depend’ – climate change. 

According to the PRI, a United Nations-supported initiative, many are now recognising ‘the enormous opportunity for economic growth and investment returns presented by the transition to net-zero emissions.’ The PRI reflect a firm belief that ‘the financial sector and the investment community will play a central role in the global response to climate change and supporting the transition to a net-zero economy.’ 

COP27 

A year after the United Nations 26th Conference of the Parties, on British shores, the upcoming COP27 climate conference is taking place in Sharm El-Sheikh, Egypt this November. Last year, delegates from almost 200 countries agreed upon the Glasgow Climate Pact at COP26, which builds upon targets set out in the Paris Agreement, an international legally binding treaty intended to limit global warming to 1.5 degrees Celsius. Key pledges made by governments last year included commitments to end deforestation, cut global methane emissions and to transition to zero-emission vehicles. Countries were asked to return to this year’s conference with a plan to strengthen their 2030 commitments. 

“A decisive decade for climate action”  

Mahmoud Mohieldin, the UN climate change high-level champion for Egypt, hopes the 2022 conference will be an important milestone in what he calls “a decisive decade for climate action.” In his view, COP27 should undertake an “urgent, ambitious, impactful, and transformative agenda, guided by a holistic approach to sustainable development,” based upon the principle of equity and informed by science. 

“In light of the goals and objectives… we will promote a stronger focus on implementation, transforming commitments into actions and translating the pledges of the summits into solutions in the field,” he continued, “While acknowledging the complexities of the different political, economic and developmental challenges, it is incumbent on us all to raise the threshold of action at COP27.” 

Climate change for investors 

COP27 will undoubtedly be of interest to investors engaged with climate change, with key announcements potentially impacting their portfolios. Investment decisions have a role to play, and the investment industry continues to play a pivotal role in the global climate transition. One investor initiative – The Net Zero Asset Managers Initiative – has now grown to over 270 investor signatories with over $60trn assets under management – all committed to supporting the goal to reach net zero and investments aligned with net zero emissions. 

COP provides an opportunity for institutional investors to consider how they can innovate in developing solutions to solve climate issues and in financing sector transition. PRI deduce that, ‘Investors increasingly recognise the threat posed by climate change to the global economy, and therefore to their ability to meet the needs of their beneficiaries over the decades to come… They understand the imperative to engage with the companies in which they invest, and the policymakers who write the laws, to ensure that both groups respond appropriately to the threats and opportunities involved.’ 

Pensions – saving for your children’s future

It may be an old adage, but definitely one that remains true – it really never is too early to start a pension. So, if you’re looking to help secure the long-term financial future of your child, or grandchild, saving into a pension on their behalf may be a suitable option worth considering, in addition to provision for earlier decades. 

Tax incentives and compound returns 

In some ways, saving for a child’s pension when they are so far from retirement can seem odd but it can actually make sound financial sense. Junior pensions can be set up as soon as a child is born and contributions up to £2,880 per annum attract tax relief of 20% from the government. Another benefit of saving at a young age is the power of compounding returns which provide growth on growth across the years. 

Small amounts add up 

These two factors mean you don’t have to save huge sums to make a big difference; saving little and often really can add up in the long term. Current rules allow savings of up to £2,880 per annum into a child’s pension. 

Fulfilling and rewarding  

Providing financial security for children, or grandchildren, is a key goal for many and saving on their behalf can therefore be fulfilling for you and rewarding for them. If you’d like to give your loved ones a financial head start, then get in touch. 

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

Housing market resilience

The number of home movers fell 35% year-on-year in the first half of 20221, a drop that was widely expected following last year’s uniquely busy pandemic-influenced market. 

Still high 

In total, 172,510 people moved house in the first six months of this year, well below the 266,270 who moved in the first half of 2021. Last year’s record, however, was heavily influenced by the government’s Stamp Duty holiday and pent-up demand from lockdowns. Indeed, excluding 2021, this year has seen the busiest start to a year for home moves since 2008. 

Trends 

All UK regions have seen the number of home movers fall in 2022, with Greater London experiencing the biggest decline (45%). Last year, detached homes consolidated their top spot for home moves, accounting for a 7% higher share than a decade ago. Home movers have also become slightly younger in the last ten years, with the average age now 40, compared to 41 a decade ago. 

Resilience 

Despite the challenging circumstances, the housing market remains resilient. We can guide you through the busy market and help you stay focused on your goals. 

1Halifax, 2022 

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments