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Equity release increase driven by cost-of-living pressures

In recent years, equity release has become an increasingly popular way for older homeowners to unlock cash tied up in their properties.

Equity release products enable homeowners over the age of 55 to access equity locked up in their homes while still being able to live in their property.

New research suggests that many homeowners are now choosing to do so to help them with the rising cost of living.

According to analysis¹, 14% of equity release applications in Q1 2022 were made by customers looking to bolster their everyday living costs. A further 12% were looking to unlock cash in order to consolidate unsecured debts. Meanwhile, over a third (36%) wanted to use equity release to clear their outstanding mortgage.

Equity release use hits record highs

Q2 2022 saw equity release lending figures hit record highs, reaching £1.6bn – a 26% increase year-on-year. This marks the fourth consecutive quarter of near record figures, according to the Equity Release Council (ERC)² and equates to nearly 12,500 new plans being taken out by over-55s between April and June 2022 alone.

ERC Chair David Burrowes commented, “Raising awareness of how modern equity release products work alongside other financial solutions is essential so people who are asset-rich but cash-poor can benefit from the wealth they have built up over their lifetimes and also support those around them.”

Talk to us

Equity release isn’t right for everyone, it can prove an expensive option, can be inflexible and may impact entitlement to benefits. It is vital to take financial advice to ensure it is a suitable option for your individual circumstances. To find out more about your options, please do get in touch.

¹Canada Life, 2022

²Equity Release Council, 2022

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments. Think carefully before securing other debts against your home. Equity released from your home will be secured against it.

Economic Review – November 2022

OBR forecasts long but shallow recession

Updated projections from the Office for Budget Responsibility (OBR) suggest the UK is facing a long but relatively shallow recession which will see households hit by a record drop in living standards.

Chancellor Jeremy Hunt unveiled the independent fiscal watchdog’s latest forecasts during his Autumn Statement delivered to the House of Commons on 17 November. Mr Hunt said the country was facing “unprecedented global headwinds” before announcing the OBR’s new figures which show the UK entered recession during the third quarter of this year.

The updated predictions suggest the UK economy will expand by 4.2% across the whole of 2022, but then shrink by 1.4% next year before returning to growth in 2024. This implies that the downturn will be relatively shallow, if long by historic standards.

Although the recession is forecast to be comparatively shallow for the economy as a whole, the household sector is expected to be hit particularly hard due to a combination of factors including soaring energy and food prices, rising interest rates and higher taxes. As a result, the OBR figures suggest households are facing the largest fall in living standards on record.

Prior to the Chancellor’s Statement, the latest gross domestic product figures from the Office for National Statistics (ONS) had revealed that the UK economy shrank in the three months to September. ONS said the economy contracted by 0.2% across the third quarter of the year driven by a decline in manufacturing which was evident ‘across most industries.’

Survey data also suggests the economy continued to shrink during the first two months of the fourth quarter. The headline reading of S&P Global’s Purchasing Managers’ Index, for instance, sank to a 21-month low of 48.2 in October and November’s preliminary reading rose only marginally to 48.3. Any value under 50 represents economic contraction.

Bank Rate hiked sharply

Last month, the Bank of England (BoE) sanctioned a further increase in its benchmark interest rate and said more rises were likely but not to levels that had been priced in by financial markets.

At a meeting which concluded on 2 November, the BoE’s nine-member Monetary Policy Committee (MPC) voted to raise Bank Rate by 0.75 percentage points to 3.0%. This was the eighth consecutive increase since December and the largest rate hike since 1989. In addition, minutes to the meeting stated that a majority of MPC members believe ‘further increases in Bank Rate may be required for a sustainable return of inflation to target.’

However, the minutes also pointed out that the peak in rates is expected to be lower than markets had been anticipating. Indeed, in an unusually blunt message delivered when announcing the rate decision, Bank Governor Andrew Bailey said, “We can’t make promises about future interest rates but based on where we stand today, we think Bank Rate will have to go up by less than currently priced in financial markets.”

The next interest rate announcement is due on 15 December and economists expect MPC members to sanction another increase in rates – in a recent Reuters poll, more than three-quarters of all economists surveyed predicted rates will rise by 0.5 percentage points, with all of the other respondents predicting a 0.75 percentage point increase.

Comments made during the last few weeks by a number of MPC members have also reaffirmed the need for further rises in order to return inflation to the central bank’s 2% target. Some members, however, including BoE Deputy Governor Dave Ramsden, have begun to mention the possibility of rate cuts at some point in the future, should economic conditions diverge from current expectations and “persistence in inflation stops being a concern.”

Markets (Data compiled by TOMD)

Global indices largely closed November in positive territory. In the UK the FTSE 100 advanced, ending the month at its highest closing level for five months, supported by commodity and energy stocks. The blue-chip index closed the month up 6.74% to 7,573.05, while the mid-cap FTSE 250 gained 7.12% and the FTSE AIM ended the month up 5.27%.

On Wall Street, markets closed sharply higher following Federal Reserve Chair Jerome Powell’s speech on 30 November, indicating the central bank might scale back the pace of its interest rate hikes as soon as December. The Dow closed the month up 5.67% on 34,589.77, while the Nasdaq closed November on 11,468.00, up 4.37%.

At the end of November, European Central Bank President Christine Lagarde said that a more hawkish line on rising inflation was needed on the continent, suggesting that more rate hikes are likely in the coming months. The Euro Stoxx 50 closed the month up 9.60%. In Japan, the Nikkei 225 closed November up 1.38%.

On the foreign exchanges, the euro closed at €1.15 against sterling. The US dollar closed the month at $1.19 against sterling and at $1.03 against the euro.

Brent Crude closed the month trading at around $86 a barrel, a loss of 5.32%. Signs of an oversupplied market earlier on in the month pushed prices lower but it recovered in recent days as discussions on a Russian price cap continue and government data showed US stockpiles plunging, while traders accelerated buying amid optimism that China will soon loosen restrictions. Gold is currently trading at around $1,753 a troy ounce, a gain of 6.99% on the month.

Record pay growth still lags inflation

While the latest earnings statistics revealed regular pay is now rising at a record level, the data also showed wage growth is still failing to keep up with the rapidly rising cost of living.

ONS figures released last month showed average weekly earnings excluding bonuses rose at an annual rate of 5.7% in the three months to September. This was the strongest recorded growth in regular pay witnessed outside of the pandemic when the data was distorted by workers returning from furlough.

However, although the rate of pay growth is currently high by historic standards, wage increases are still being outpaced by spiralling inflation – in real terms, regular pay actually fell by 2.7% over the year to September. This represents a slightly smaller decline than the record fall recorded three months ago but is still among the largest falls since comparable records began in 2001.

The latest official inflation statistics also revealed a further jump in price growth during October, with soaring energy bills and food prices pushing the annual figure to a 41-year high. The headline rate of Consumer Price Inflation rose to 11.1% in the 12 months to October, a big jump from September’s rate of 10.1%.

Retail sales rise in October

Official data shows that retail sales staged a partial recovery in October although more recent survey evidence suggests retailers remain relatively pessimistic about future trading prospects.

The latest ONS retail sales statistics revealed that total sales volumes rose by 0.6% in October, following a 1.5% decline during the previous month when shops closed for the Queen’s funeral. Despite this partial rebound, ONS said the broader picture was that sales are still on a downward trend that has been evident since summer 2021 and that volumes remain below pre-pandemic levels.

Survey evidence also highlights the current difficulties facing the retail sector, with the latest Distributive Trades Survey from the CBI showing the net balance of retailers reporting year-on-year sales growth falling from +18% in October to -19% in November. A similar proportion also said they expect sales to fall this month suggesting most firms anticipate little festive cheer this December.

Commenting on the findings, CBI Principal Economist Martin Sartorius said, “It’s not surprising that retailers are feeling the chill as the UK continues to be buffeted by economic headwinds. Sales volumes fell at a firm pace in the year to November, and retailers remain notably downbeat about their future business prospects.”

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 and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. 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. No part of this document may be reproduced in any manner without prior permission.

News in Review

“Even before the recent increases in mortgage rates, affordability was becoming more stretched across the UK”

UK house prices fell by 1.4% month-on-month in November, according to the latest Nationwide House Price Index released last Thursday, the biggest monthly drop since June 2020. At £263,788, the non-seasonally adjusted November average price was 4.4% higher on an annual basis, compared to a yearly growth of 7.2% recorded in October.

Commenting on the findings, Nationwide’s Chief Economist Robert Gardner, said, “The fallout from the mini-budget continued to impact the market, with November seeing a sharp slowdown in annual house price growth… While financial market conditions have stabilised, interest rates for new mortgages remain elevated and the market has lost a significant degree of momentum.”

“Even before the recent increases in mortgage rates, affordability was becoming more stretched across the UK” he added.

CBI update

The Confederation of British Industry (CBI) projected on Monday that the country’s economy is on course to shrink by 0.4% in 2023, as persistently high inflation continues to dampen longer-term growth prospects. This new forecast is a sharp downgrade since the CBI’s last update in June, when it predicted growth next year of 1.0%.

Unemployment is expected to peak at 5.0% in late 2023 and early 2024, up from 3.6% currently, while gross domestic product (GDP) is forecast to return to its pre-pandemic level only in mid-2024. CBI Director-General Tony Danker warned of “a lost decade of growth if action isn’t taken.”

US rate rises to slow

Last Wednesday, Chair of the Federal Reserve Jerome Powell said in a speech that interest rate rises might be eased as early as this month, with a 50-basis point rate hike now expected at the Fed’s December meeting. The previous four meetings have all resulted in the Fed increasing its benchmark interest rate by 0.75% to reach the current target range of 3.75% to 4%, which is the highest level since 2007.

In his speech, Mr Powell hinted that rates could be held at a high level for longer to guard against a recession. “It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down”, he said.

Price cap on Russian oil causes price spike

Oil prices rose on Monday in response to the decision by the G7 group of major economies to implement a price cap of $60 a barrel on Russian oil. The price of Brent Crude Oil climbed almost 2% to $87.25 a barrel, as fears grew of global supplies being disrupted in the coming months.

Separately, OPEC+, a group of the top oil-producing countries, said on Sunday that it would stick to its policy of reducing output in an effort to prop up global prices.

November sales boost

Total retail sales in the UK jumped by 4.2% in November compared with the same month a year ago, according to a snapshot from the British Retail Consortium (BRC) released on Tuesday. November’s reading was the highest since January, as retailers enjoyed a boost from Black Friday. Colder weather, meanwhile, caused sales of winter coats, hot water bottles and hooded blankets to soar.

Despite the strong monthly showing, Helen Dickinson, Chief Executive of the BRC, cautioned that “sales growth remained far below current inflation, suggesting volumes continued to be down on last year.”

Further positive sales news had been provided on Monday by the Society of Motor Manufacturers and Traders (SMMT), with its finding that Britain’s new car market grew by 23.5% in November, a fourth consecutive monthly rise. A total of 142,889 units registered last month was the best for November since 2019, though overall registrations are still 8.8% below pre-pandemic levels.

Markets

London stocks ended lower on Tuesday as falls in shares of UK’s big utility companies was offset by rises in bank shares. The FTSE 100 closed down 0.61% at 7,521.39 and the FTSE 250 closed down 1.19% at 19,100.08.

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 (7 December 2022)

Residential Property Review – November 2022

More Stamp Duty changes in Autumn Statement

Chancellor Jeremy Hunt’s Autumn Statement on 17 November left housing out of the limelight, though it did include a commitment to keep the Stamp Duty Land Tax (SDLT) changes announced in the ‘mini-budget’ – for now.

In September, then-Chancellor Kwasi Kwarteng increased the nil-rate threshold of SDLT to £250,000 (previously £125,000) for residential property in England and Northern Ireland. First-time buyers (FTBs), it was announced, could spend £425,000 (previously £300,000) without paying a penny in tax.

Moreover, FTBs also benefited from an increased maximum purchase price of £625,000 for which First Time Buyers’ Relief could be claimed, up from £500,000.

In his Autumn Statement, Mr Hunt confirmed that he will uphold these changes – but only until March 2025. Originally, the changes had been implemented on a permanent basis.

Elsewhere in the Autumn Statement, rent increases in the social housing sector will be capped at 7% in the next financial year. In total, Mr Hunt announced around £55bn in spending cuts and tax rises.

Hesitant FTBs put the brakes on

Higher mortgage costs have caused many prospective buyers to put the brakes on their house purchase, with those buying their first home the worst impacted.

Buyer demand fell by 20% in October compared to a year earlier, according to Rightmove, with soaring borrowing costs and rising economic uncertainty the key drivers. FTBs were the most hesitant, with demand down 26% in the month.

FTBs have lost another motivation to buy since the end of the Help to Buy Equity Loan scheme. The scheme, which was set up to help FTBs purchase a home in England, has now closed to new applications; all homes purchased via the scheme will need to have completed by the end of March 2023.

Help remains for FTBs, however, including the Lifetime ISA, which adds a government bonus of 25% onto savings up to £4,000 each year. The Help to Buy ISA, meanwhile, has closed for new applicants, though anyone with an existing account can still add up to £200 per month until November 2029.

A quarter of landlords plan to sell

More than one in four landlords is thinking about selling properties, according to a new survey that reveals the extent of discontent in the sector.

In recent years, landlords have had to deal with a variety of regulatory and tax changes, as well as stricter Energy Performance Certificate (EPC) requirements.In response, 39% of buy-to-let investors now plan to put rents up.

Donna Hopton, Director at cherry, which carried out the research, noted that, during recent market turbulence, buy-to-let investors have “arguably been hit hardest”. Despite this, she said, “there are also millions of landlords who remain committed to the market, and it’s a market of continued demand from tenants and rising rents, so there will be plenty of opportunity for property investors.”

Commercial Property Market Review – November 2022

Weakening outlook for commercial property

The Q3 2022 RICS UK Commercial Property Survey reveals a picture of weakening market activity, with 81% of respondents now considering the market to be in downturn.

Headline expectations for rents and capital values were in negative territory in Q3. Prime office rents are expected to remain broadly flat in the year ahead, as opposed to a previously expected increase expected. Meanwhile, the outlook for the secondary office sector is more negative, with a net balance of -42% of respondents expecting a decline in rents (down from a reading of -26% in Q2).

Twelve-month rental expectations are still positive for the industrial sector, while the degree to which rents are envisaged rising is the most modest since the early stages of the pandemic.

Looking ahead, the prospect of further interest rate rises continues to weigh heavily on the outlook for the next 12 months. ‘The full extent is not currently known’ commented one respondent.

Prime yields rise in stormy quarter

All-property average prime rents rose by 1.5% in Q3 2022, according to CBRE’s latest quarterly Prime Rent and Yield Monitor.

Yields moved up 41 basis points, following a turbulent quarter that included the market turmoil brought about by September’s ‘mini budget’. The latest Market in Minutes report from Savills also showed yields rising across the board, as commercial markets reprice at speed. The report observes that, ‘price discovery is happening more quickly than we have ever seen before in a falling market’.

Savills remain optimistic about the outlook for the office and logistics occupational markets, noting that these sectors proved their resilience during the turbulent pandemic years, even delivering record prime rent levels in some cases. The same factors that drove this resilience – an undersupply of prime space and a contracting development pipeline – remain in place, it points out.

Less positively, weakening confidence and rising construction prices are leading to fewer-than-expected refurbishment and development starts this year, Savills stated. Indeed, 43% of planned London office completions have not yet started on site.

Strong take-up in big shed market

The industrial sector remains resilient, according to Avison Young’s Big Box Bulletin Q3 2022, with strong market fundamentals holding firm in trying economic conditions.

Take-up in Q3 totalled 14.8m sq. ft – 47.8% above the five-year quarterly average. Analysts expect demand to stay strong, moreover, especially ‘best-in-class’ buildings with strong environmental credentials.

Year-to-date take-up still lags the record-breaking performance of 2021, which, analysts say, is the result of an undersupplied market. Indeed, availability of grade A space is currently 24m sq.ft, equivalent to only two months’ worth of supply based on recent demand.

Key Q3 occupiers included SeAH Wind Ltd (1,130,000 sq. ft), Rhenus Logistics (981,042 sq. ft) and Maersk (601,761 sq. ft). Q3 take-up was dominated by speculative (44%) and design & build (41%), with existing buildings contributing 15%.

Regionally, the East Midlands (30.7%) led the way, ahead of Yorkshire and North East England (23.4%) and North West England (13.4%).

News in Review

“Black Friday is still an important milestone in the retail calendar”

On Friday, retailers received a boost from deal-seeking shoppers who defied fears of a dampened event to spend more than in 2021. Amid inflationary pressures and cost-of-living concerns, Black Friday – historically the biggest online spending day before Christmas – saw a 3.2% increase in transactions, according to Barclaycard Payments. Footfall also increased and a record was broken for transactions-per-second between 12pm and 1pm.

Before the event, experts had predicted overall sales and profits to be lower than last year due to prices rising at the fastest rate for 41 years. As well as splurging on Christmas gifts, however, cost-conscious shoppers sought out deals this year that will save them money further down the line, with Currys naming energy-efficient products as its bestsellers on the day.

Marc Pettican, head of Barclaycard Payments, commented, “Black Friday is still an important milestone in the retail calendar. This is encouraging news for retailers who will have been unsure about the outcome of today, given the rising cost-of-living […] While shoppers may be tightening their belts overall, it looks like some have been holding back on purchases to wait for the sales to start and others are likely on the hunt for deals for Christmas gifts.”

UK leads global slowdown

Last week, the Organisation for Economic Cooperation and Development (OECD) published its November Economic Outlook, in which it forecast a ‘significant growth slowdown’ globally in 2023. Titled ‘Confronting the Crisis’, the report laid out the realities of slowing growth combined with high and persistent inflation.

The slowdown is the result of a combination of factors, the OECD noted, with tighter monetary policy, persistently high energy prices, weak real household income growth and declining confidence all weighing on growth. Referencing the war in Ukraine, the report highlighted how higher energy prices have helped trigger an increase in prices across a broad basket of goods and services. The intergovernmental body forecasts average inflation across the OECD to be 6.6% in 2023.

The US and Europe are both expected to experience weak growth, but it is the UK that is forecast to suffer the biggest downturn. The UK economy will contract by 0.4%, according to the OECD, more than any other nation in the G7 group. Germany is the only other major economy expected to shrink, while Russia, still under Western sanctions, is the only G20 member expected to perform worse than the UK.

One cause of the UK’s below-par performance is the Energy Price Guarantee, the OECD claimed. The scheme, set up to support household and business energy bills, will reduce the immediate headline inflation rate but increase medium-term inflationary pressures by adding to overall demand in the economy.

Output volumes rise

Last Thursday, the release of the Confederation of British Industry (CBI)’s latest Industrial Trends Survey brought positive news, as it reported that UK manufacturers saw a rise in output in the three months to November.

This is the first increase since the three months to July 2022, the report noted, with manufacturing output volumes increasing by 18%, compared to a 4% fall in the three months to October. The increase in output was largely driven by food, drink and tobacco industries, as well as motor vehicles and transport equipment sectors, though output rose more broadly too, with positive readings in nine out of 17 sectors.

Looking ahead, however, output is predicted to fall by 10% in the three months to February, with production also expected to decline in the next quarter. Stocks remain broadly adequate, the CBI said, but total order books and export order books are below normal. Despite the positive news, Anna Leach, CBI Deputy Chief Economist, highlighted “big question marks hanging over the competitiveness of UK manufacturing.”

Markets

London stocks were mixed at close on Tuesday, with the top-flight index maintaining most of its gains amid positive hopes that China would soon ease its strict COVID restrictions. The FTSE 100 ended the session up 0.51% at 7,512.00, while the FTSE 250 was down 0.55% at 19,186.16.

Here to help

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

All details are correct at time of writing (30 November 2022)

Finding your ‘happy place’ in retirement

If you’re in Wiltshire and about to retire, you’re doing it in the right place.

This is according to an online search engine¹ that helps retirees and their families find the best retirement communities and care homes. The research found that Google searches for ‘retirement homes in Wiltshire’ have soared by 150% in the last year alone – and for good reason! With its beautiful countryside, historic towns and City of Salisbury, and great investment potential, Wiltshire is an ideal location to live out one’s later years. In close second and third places are Buckinghamshire and Dorset, scoring high on both investment potential and wellbeing.

Reaching your financial happy place

No matter where you’re located, though, the truth remains that you’ll struggle to achieve a happy and fulfilled life in retirement without an adequate level of income. So, how much money do today’s retirees need to live their best life after quitting work? According to a recent survey², the average retired couple spends £2,333 a month (around £28,000 per year) to be ‘comfortable’ – i.e. having enough to cover their basic expenditure requirements in addition to some luxuries such as holidays, hobbies and dining out.

¹Lottie, 2022

²Which? 2022

Pensions update

Recently released research¹ suggests UK consumers are becoming more knowledgeable about pensions and prepared to take a greater role in preparing for retirement. Other research², however, shows significant sums are still sat in ‘lost’ pensions, while experts have warned about potential pension-related problems as the cost-of-living crisis bites.

Pensions knowledge improving

A survey conducted by Link Group suggests bodies within the pensions industry have had some success in building better public knowledge of pensions and the importance of retirement planning. The research found that almost four out of five consumers ‘understand’ pensions, with 18 to 34-year-olds more likely to display higher levels of knowledge than consumers in other age groups. In addition, nearly six out of ten respondents said they should take more responsibility for ensuring they have a good retirement income.

Time to trace lost pensions?

Estimates suggest there is currently over £19bn sat in lost pension pots across the UK. These are typically the result of people changing jobs and then not keeping track of contributions made with previous employers. The good news, however, is that the government runs a free pension tracing service (www.gov.uk/find-pension-contact-details) to help employees track down their lost pensions. So, if you’ve worked for a number of different employers down the years it might be worth checking to see if you can be reunited with a long-lost pension.

Pensions warnings

Experts are warning the over-55s not to be tempted to raid their pension pots in response to the cost-of-living squeeze. There are fears that if people withdraw lump sums or start taking an income sooner than planned this will result in them having less income in the future. People are also being warned not to reduce their workplace pension contributions as a knee-jerk response to the cost-of-living crisis.

¹Link Group, 2022

²ABI, 2022

News in Review

“A balanced plan for stability”

Last Thursday, Chancellor of the Exchequer Jeremy Hunt set out his plan to “tackle the cost-of-living crisis and rebuild our economy” in his first Autumn Statement. Striking a defiant tone, the Chancellor said that he was “taking difficult decisions”, while emphasising that the government’s priorities are “stability, growth and public services.”

Mr Hunt made several key announcements on personal taxation, pensions and public services, as he laid out spending cuts and tax rises totalling around £55bn. In response to “unprecedented global headwinds”, however, the Energy Price Guarantee (EPG) per unit will be maintained through the winter. This will, in effect, limit average energy bills to £2,500 per year; from April 2023 the EPG will rise to £3,000 per year, before ending in March 2024.

The government will also increase the National Living Wage for individuals aged 23 and over to £10.42 an hour, a 9.7% rise effective from April 2023. Likewise, the Chancellor committed to retaining the Triple Lock on pensions, which will mean the State Pension rises in line with September’s Consumer Prices Index (CPI) rate of 10.1% – from April 2023.

On taxation, the Income Tax additional rate threshold at which 45p becomes payable will be lowered from £150,000 to £125,140 from 6 April 2023. 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 Dividend Allowance will also fall from £2,000 to £1,000 from April 2023, and then to £500 from April 2024.

The change to the Stamp Duty Land Tax threshold for England and Northern Ireland, announced in the former Chancellor’s ‘mini-budget’ in September, will now remain in place until March 2025. This means that the nil-rate threshold will stay at £250,000 for all purchasers and £425,000 for first-time buyers, compared to £125,000 and £300,000 previously.

Targeted cost-of-living support measures will also continue, with an additional Cost of Living Payment of £900 available to households on means-tested benefits, £300 to pensioner households and £150 to individuals on disability benefits in 2023-24.

In his closing lines, Mr Hunt summed up the announcements as “a balanced plan for stability, a plan for growth and a plan for public services.”

COP27 ends in Egypt

The annual UN climate conference ended in Sharm el-Sheikh early on Sunday morning, after delegates finally found common ground on an historic ‘loss and damage’ plan. For the first time in 30 years of climate talks, developed countries agreed to provide finance to poorer countries stricken by climate-induced disasters – though the details are yet to be clarified.

Despite this achievement, developed nations left COP27 disappointed with the progress made on cutting fossil fuels. The final overarching deal did not include commitments to reduce fossil fuel use and also added ambiguous new language about ‘low emissions energy’, which, experts say, could later be used to include fossil fuels within a green energy future.

Reflecting on two weeks of talks, UK lead negotiator Alok Sharma commented, “I’m incredibly disappointed that we weren’t able to go further.”

Inflation hits new heights

Last Wednesday, the Office for National Statistics (ONS) released inflation figures for October, which revealed that the Consumer Prices Index (CPI) rose annually by 11.1%, up from 10.1% in the previous month.

Gas (up 130%) and electricity prices (up 66%) remained the main drivers of annual inflation, even though the government’s EPG scheme went some way to mitigating those rises. Food prices, especially basic items such as milk and eggs, increased at 16.2%, the fastest rate for 45 years. As a result, it is poorer households – which spend a higher proportion of their income on food and energy – who are being hit hardest, according to ONS.

Amidst the rising costs, retail sales rose by 0.6% in October, though this was skewed by the drop in sales in September when shops closed for the Queen’s funeral. Despite October’s rebound, ONS said sales remain below pre-pandemic levels.

Markets

London stocks remained well above the waterline at close on Tuesday, with energy shares in the green as oil prices recovered. The FTSE 100 ended the session up 1.03% at 7,452.84, and the FTSE 250 was ahead 0.05% at 19,422.37.

Here to help

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

All details are correct at time of writing (23 November 2022)

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)