What the Autumn Statement means for individuals and businesses

As widely expected, in his Autumn Statement Chancellor Jeremy Hunt announced sweeping tax rises and spending cuts totalling £55 billion over the next five years.

Our view:

The Autumn Statement included a number of measures that will mean people pay more tax. These include the lowering of the threshold for the 45% additional rate of Income Tax and the reduction of the Capital Gains Tax and dividend allowances. The Chancellor also froze until 2028 the tax-free personal allowance and the thresholds for higher-rate Income tax, National Insurance and Inheritance Tax. 

From an economic perspective, tax increases are likely to result in lower growth. However, stock markets can perform very differently to the economy. As an example, the UK stock market has been one of the better-performing stock markets globally this year. This is because of the number of defensive income-paying companies in the UK index. These businesses, many of which are in sectors such as utilities and consumer staples, tend to do better in difficult market environments. A high exposure to energy companies has also been a tailwind for the UK stock market.

While a global recovery in equity markets is likely to see the UK equity market lag, we would expect stronger performance from small and medium-sized companies. In addition, we have exposure to several income managers in the UK who have added value in the current environment. However, we expect our positioning to change as we move into 2023. We are likely to reduce our exposure to the overall UK market, while increasing our weighting to small and medium-sized companies. Given the changing market dynamics, we continue to believe that active managers will prove their worth.

Impact on individuals:

Energy Price Guarantee

The annual energy bill for a typical household will be allowed to rise to £3,000 in April, from £2,500 now. There will be an extra £900 in help for low-income households on means-tested benefits. Pensioner households will receive £300 and people on disability benefits will receive £150, which is the same as this year.

Income Tax

The threshold for the 45% additional rate of Income Tax will be lowered from £150,000 to £125,140 from 6 April 2023. The tax-free personal allowance will remain at £12,570 and the higher-rate tax threshold will stay at £50,270. These thresholds have been frozen until 2028.

National Insurance (NI)

The NI earnings thresholds have been frozen until April 2028, but the 1.25% additional Social Care Levy that was scrapped in September has not been reinstated.

Inheritance Tax

The Inheritance Tax nil rate band and additional Residence nil rate band will be frozen at £325,000 and £175,000 respectively for a further two years until April 2028.

State pension

The pension ‘triple lock’ has been protected and the state pension will go up by £870 from April 2023, an increase of 10.1%, which is in line with inflation. The government is also reviewing the state pension age and will publish its review in early 2023.

Stamp Duty

Stamp Duty changes announced in the recent ‘mini-budget’ will remain until March 2025. In England and Northern Ireland, the Stamp Duty threshold is £250,000 and the first-time buyer threshold is £425,000 on properties under £625,000.

Tax on electric vehicles

From April 2025, electric vehicles will no longer be exempt from Vehicle Excise Duty and company car tax rates will increase, although they will remain lower than tax rates on traditional combustion engine cars.

Impact on pensions and investments:

Pension allowances

There has been no significant change to pensions. The headline annual allowance remains at £40,000 and the lifetime allowance remains frozen at £1,073,100 until April 2026.

Tax allowance for dividends

This is being reduced from £2,000 per year to £1,000 per year from April 2023 and to £500 per year from April 2024.

Capital Gains Tax

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.

ISA Allowance

There has been no change to the annual ISA allowance, which remains at £20,000

Impact on businesses:

Windfall tax

The windfall tax on profits of oil and gas firms will increase from 25% to 35% until March 2028. There will also be a new temporary 45% levy on electricity generators from January 2023 until March 2028 and the Chancellor expects this to raise an extra £14 billion.

Business rates

Properties will be revalued for business rates from April 2023, but there will be significant government support for firms, including a new relief scheme. The government says that two-thirds of properties will not pay any more in business rates.

VAT threshold

The VAT registration threshold will be maintained at £85,000 for a further two-year period from April 2024 and the headline rate of VAT remains at 20%.

National Living Wage increase

The National Living Wage will rise from £9.50 per hour for over 23s to £10.42 from April 2023, an increase of 9.7%.

National Insurance (NI)

The National Insurance employment allowance of up to £5,000 is frozen until April 2028.

Energy Price Guarantee

While this has been extended for households for a further 12 months from April 2023 (albeit at a less generous level), there has been no further support announced for businesses. The current relief ends in March 2023.

Raj Manon, Portfolio Manager, 17/11/22

Risk Warnings 

Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds. Our funds invest for the long-term and may not be appropriate for investors who plan to take money out within five years. The funds may have exposure to bonds, the prices of which will be impacted by factors including; changes in interest rates, inflation expectations and perceived credit quality. When interest rates rise, bond values generally fall. This risk is generally greater for longer term bonds and for bonds with higher credit quality. The funds invest in other currencies. Changes in exchange rates will therefore affect the value of your investment. The funds may invest a large part of its assets in other funds for which investment decisions are made independently of the fund. If these investment managers perform poorly, the value of your investment is likely to be adversely affected. Investment in other funds may also lead to duplication of fees and commissions. In certain market conditions some assets may be less predictable than usual. This may make it harder to sell at a desired price and/or In a timely manner. All or part of the fees and expenses may be charged to the capital of the funds rather than being deducted from income. Future capital growth may be constrained as a result of this.

Regulatory Information 

This material is for distribution to professional clients only and should not be distributed to or relied upon by any other persons. It’s provided for general information purposes only and is not personal advice to anyone to invest in any fund or product. Information taken from trade and other sources is believed to be reliable, although we don’t represent this as accurate or complete and it shouldn’t be relied upon as such. Calls will be recorded for training and monitoring purposes. 
Issued by Marlborough Investment Management Limited, authorised and regulated by the Financial Conduct Authority (reference number 115231). Registered office: PO BOX 1852 Lichfield, Staffordshire, England, WS13 8XU. Registered in England No. 01947598. Investment Fund Services Limited (IFSL) is the Authorised Fund Manager of the Fund. IFSL is registered in England No. 06110770 and is authorised and regulated by the Financial Conduct Authority. Registered office: Marlborough House, 59 Chorley New Road, Bolton, BL1 4QP. Copies of the Prospectus and Key Investor Information Documents are available from www.ifslfunds.com or can be requested as a paper copy by calling 0808 178 9321 or writing to IFSL at the registered office above.