Category: news
Investment market update: November 2022
Globally, inflation and recession risks continued to affect markets in November.
Head of the International Monetary Fund (IMF) Kristalina Georgieva suggested that inflation could be nearing its peak.
However, the Organisation for Economic Cooperation and Development (OECD) urged central banks around the world to keep raising interest rates to tackle moderate levels of inflation. So, while some of the pressure may be starting to ease, households and businesses are likely to still face challenges in 2023.
Remember, while markets may experience volatility, you should focus on your long-term goals. While it is impossible to guarantee returns, markets have historically recovered from downturns.
UK
Official statistics show that the UK economy contracted by 0.2% in the third quarter of 2022. This means the economy is on the brink of recession. Inflation also increased to another 40-year high in the 12 months to October to 11.1%.
Against this backdrop, new prime minister Rishi Sunak and chancellor Jeremy Hunt delivered the autumn statement.
In sharp contrast to the mini-Budget delivered just a few months ago under the leadership of Liz Truss, the autumn statement increased taxes. Key changes were made to the Capital Gains Tax annual exempt amount, Dividend Allowance, and the threshold for paying additional-rate Income Tax.
Hunt also confirmed that the State Pension triple lock would be maintained. This will give pensioners a record rise in income as the State Pension will increase by 10.1% in April 2023.
In response to high inflation, the Bank of England (BoE) increased its base interest rate again. The rate is now 3% and the highest it’s been since the financial crisis. The central bank also warned that the UK could face a prolonged recession.
The economic and political turmoil meant that Britain lost its title as Europe’s largest equity market to France.
The Standard & Poor (S&P) Global Purchasing Managers Index (PMI) for the UK manufacturing sector fell to 46.2 in October. A reading below 50 suggests the sector is contracting and it’s the lowest reading since May 2020 when the pandemic affected operations. The war in Ukraine, weaker demand from China, and ongoing challenges related to Brexit were linked to the downturn.
People reigning in their spending are affecting the retail sector. Data from the Office for National Statistics (ONS) suggests that retail sales are still below their pre-pandemic levels.
Several high street brands, including Joules and Made, have fallen into administration due to the challenging circumstances.
The economic uncertainty is affecting households too.
The UK jobless rate increased to 3.6%, according to the ONS, which also found that wages are lagging behind inflation.
A report from think tank the Resolution Foundation found that two decades of wage stagnation is costing the average British worker £15,000 a year. The report suggests that wages will not return to the level before the 2008 financial crisis in real terms until 2027.
Budgets are being stretched by household essentials. A report from Kantar Worldpanel found that grocery inflation hit 14.7%. This means that the average grocery bill has increased by £682 in a year.
With inflation in mind, it’s not surprising that a GfK report found that British consumer confidence is at a record low.
Consumer confidence is also affecting the housing market, with many people reluctant to move or increase the amount of debt they have as interest rates rise.
Figures from Nationwide show that house prices fell by 0.9% month-on-month in October. Many experts are predicting that house prices will fall in 2023. Savills predicts a fall of 10%.
In turn, this is affecting UK builders, as new orders fell for the first time since May 2020, when the first Covid-19 lockdown was in force.
Europe
The situation in Europe is similar to the UK, with recession risk and high inflation affecting business confidence.
According to Eurostat, inflation across the eurozone hit 10.6% in the 12 months to October. The energy crisis is the biggest factor pushing up the rate of inflation as prices were 41.5% higher than they were a year ago. There’s also significant variance between the countries that are part of the eurozone. France had the lowest rate of inflation at 7.1%, compared to 22.5% in Estonia.
Unsurprisingly, concerns are having a knock-on effect on businesses. The S&P Global PMI for manufacturing in the eurozone fell to a 29-month low of 46.4. The reading shows the sector is contracting, which could indicate the region is in recession.
As Europe’s largest economy, Germany is often used as an indicator of the region. German factory orders fell 4% month-on-month, partly driven by a fall in foreign orders.
This has affected business sentiment. A survey conducted by the Association of German Chambers of Commerce and Industry found that 82% of businesses see the price of energy and raw materials as a business risk. This is the highest since records began in 1985.
US
Official statistics suggest that inflation in the US is stabilising. In the 12 months to October 2022, it was 7.7% after a slight dip when compared to the previous month.
Figures from the Bureau for Labor Statistics also indicate that businesses are feeling optimistic. Despite economists expecting a drop in the number of job openings, there was an increase of more than 400,000 in September. The findings suggest that businesses are continuing to invest and feel confident enough to expand their workforce.
Revenue updates from some American companies also paint a positive picture.
Pharmaceutical firm Pfizer raised its 2022 earnings guidance and Covid-19 vaccine sale forecast. It now expects earnings per share to be between $6.40 and $6.50 (£6.20 to £6.30), compared to its previous forecast of $6.30 to $6.45 (£6.11 to £6.25).
US company Uber also saw its shares rise after it beat revenue forecasts. Year-on-year, revenue increased by 72% to $8.3 billion (£8.05 billion) after lockdowns were lifted.
On the flip side, Mark Zuckerberg, owner of Meta (formerly Facebook), admitted he had got it wrong and that things were worse than he had expected. The company is set to cut 11,000 jobs, the equivalent of 13% of its workforce.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Experts forecast a recession in 2023. Here’s why and what it means for your investments
Experts are predicting that the UK will face a recession in 2023. While it can be tempting to react to this news by changing your investment strategy, sticking to your long-term plan makes sense for most investors. Read on to find out why.
Several factors are contributing to economic uncertainty, including high inflation and concerns about energy supply. The long-term effects of the Covid-19 pandemic and the ongoing war in Ukraine are two of the reasons for these challenges.
In its November report, the Bank of England said the economic outlook was “very challenging”. It expects the economy to be in “recession for a prolonged period”, adding that inflation was forecast to remain high until mid-2023 when it is expected to fall sharply.
Other predictions also paint a gloomy picture of the UK economy.
According to the EY ITEM Club, the economy will contract by around 0.2% each quarter from the final quarter of 2022 until the second quarter of 2023. Overall, it expects the economy to contract by 0.3% in 2023. This compares to a previous forecast that indicated the economy would grow by 1%.
The organisation noted this is shallow when compared to previous recessions thanks, in part, to the government’s intervention on energy bills.
Hywel Ball, EY UK chair, added: “There are very significant risks to the forecast, with the potential for further surprises or global instability creating additional drags on growth. Businesses will need to think very carefully about their resilience and plan for different scenarios, while also being mindful of the support they provide to their customers and employees.”
Similarly, Goldman Sachs has downgraded its growth forecast for the UK, according to a Guardian report. The investment bank now expects the UK economy to shrink by 1% in 2023.
A recession could lead to market volatility, but history indicates it recovers in the long term
While these predictions can be alarming to an investor, remember, that markets have recovered from previous downturns.
Economic uncertainty can lead to businesses and households tightening their belts, which has a knock-on effect on business profitability and markets. While it’s impossible to predict the markets, history shows us that they have recovered from recessions in the past.
Take the 2008 financial crisis. In the UK, the recession that followed lasted for five consecutive quarters. During this time, the markets fell, but they went on to recover and grow. Investors that panicked and sold amid the downturn would have turned paper losses into real losses and missed out when markets began to rise.
Over the next year, your investment portfolio may experience volatility or a fall in value. While all investments carry some risk, looking at how markets have responded to similar events over the long term in the past can give you confidence.
If you’re tempted to make changes to your investments, here are five things you should do.
1. Focus on your long-term goals
As highlighted above, investment markets have historically delivered returns over the long term. Rather than responding to short-term economic challenges, focus on why you’re investing.
2. Don’t make knee-jerk decisions
It can be easy to make knee-jerk decisions, especially during investment volatility. But the decisions you make can have a long-lasting effect, so it’s important that they are measured. Taking some time to weigh up the pros and cons can highlight where you could be making a mistake by reacting to short-term volatility.
3. Review investments alongside your financial plan
Don’t think of your investments in isolation, they should play a role in your overall financial plan. So, if you’re tempted to make changes, review your options in the context of your wider finances and goals.
4. Consider your risk profile before you make changes
Before you make any investment decisions, you need to consider how they could change your risk profile. Choosing risk-appropriate investments is important. Taking too little risk could mean you don’t reach your goals, while taking too much could mean you’re exposed to more volatility.
5. Speak to us
If you have any questions about the current economic situation or would like to discuss your investment plan, speak to one of our team. We’ll help you understand the effect on your lifestyle and your goals. Whether you want reassurance that your plans are still on track or you’re considering making changes to your investments, we’re here to help.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Life insurance vs family income benefit: Which one is right for your family?
Creating financial security for your family if the worst should happen can be difficult to contemplate. However, it’s something that can ensure the people most important to you are taken care of.
If you’ve yet to take out financial protection that would give your loved ones financial security if you passed away, there are two main options to consider: life insurance and family income benefit.
Both options can be valuable and whether they’re right for your family will depend on your circumstances.
Life insurance would pay out a lump sum
Assuming you keep up the premiums, life insurance will pay out a lump sum if you pass away during the term.
The money paid out is tax-free and can be used however your family wishes. The level of cover chosen is often linked to significant financial commitments, such as your mortgage. However, your family could also use the money to support day-to-day living costs.
It’s important to calculate the level of cover that would provide your family with financial security and understand how losing your income could affect outgoings.
Life insurance can provide your loved ones with security so they can grieve without having to worry about how they’re going to meet bills or other expenses. It can also help maintain their lifestyle, such as paying the school fees of your children.
Family income benefit would pay out a regular income
If you passed away during the term and had paid the premiums, family income benefit would provide your loved ones with a regular income until the end of the policy term.
You may choose to link the cover to milestones, for example, ensuring that family income benefit would continue to provide an income until all your children reached adulthood.
You should consider what expenses your income is used for when calculating the level of cover that’s right for your family. As well as the outgoings you already pay, would they change if you passed away? For example, would your family’s childcare costs rise?
As family income benefit provides a regular income, it can make it easier for the surviving partner to manage their budget. However, it may not provide as much flexibility as life insurance.
Should you have both life insurance and family income benefit?
Depending on your circumstances, it may make sense to take out both life insurance and family income benefit.
Your family could use the money paid out from a life insurance policy to pay one-off costs, such as a mortgage. The regular income provided through family income benefit could then be used to cover day-to-day costs. It can help your loved ones balance large and small expenses they may be responsible for.
Financial planning can help you choose the right financial protection for your family
Understanding which type of financial protection is right for you, and what cover your family needs can be difficult. We’re here to help you understand the options and “what if?” scenarios you may be worried about to create a plan that suits you.
If providing your loved ones with a way to pay off the mortgage is a priority, for instance, you may want to consider life insurance where the cover reduces over time. This would reflect your regular mortgage repayments and mean premiums may be lower.
As well as helping you understand what type and level of cover is right for your family, financial planning can be invaluable if the worst happens.
It could help your partner understand how to use the pay out from life insurance to create long-term financial security. Receiving a lump sum can be useful, but it can also be overwhelming. Working with a professional to understand the different options could help them balance short- and long-term goals.
It can also provide financial peace of mind and mean they’re able to focus on grieving, or supporting children.
Working together with a financial planner can help you and your family have confidence that you’re financially prepared for the future.
When creating a financial plan, there may be other steps you can take to build long-term security too, from adding more to your pension to building an education fund for your children.
Contact us to talk about financial protection
If you have questions about financial protection and other steps you can take to create long-term financial security, even when the unexpected happens, please contact us.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
4 vital things you should discuss when naming a Lasting Power of Attorney
A Lasting Power of Attorney (LPA) gives someone you trust the ability to make decisions on your behalf if you cannot.
This can ensure there’s someone taking care of your affairs and advocating on your behalf if you’re ill or lose mental capacity. Naming an LPA is an important step, and it’s one you should discuss with the prospective person first.
In simple terms, an LPA is a document that gives someone the power to make decisions around health or money on your behalf.
In many cases, an LPA is used when someone loses mental capacity, but it can also be useful in other situations and may be temporary. For example, if you’re receiving treatment in a hospital, you may want someone to manage your bills so you can focus on your recovery.
Without an LPA, it can be difficult, costly, and time-consuming for loved ones to gain the power to make decisions for you. They would need to apply to the Court of Protection, which would appoint a deputy to make decisions. The deputy appointed may not be the person you’d choose, so naming an LPA now can help ensure your wishes are carried out.
Even if you’re married or in a civil partnership, you should consider an LPA – your partner does not have an automatic right to manage your affairs.
Choosing your Lasting Power of Attorney
Anyone over the age of 18 can be named an LPA, but you should think carefully about who you choose.
The right person should be someone you trust. You should also consider their age and health. For instance, while your partner may be your first choice, they may have their own health issues to manage.
As well as someone you know, you may also choose a professional LPA, such as a solicitor.
You can choose more than one person to act on your behalf. You can decide if they can make decisions independently or must make them together. Having more than one LPA can be useful, but you should consider whether they may disagree on what to do.
Whoever you choose as your LPA, having an honest conversation is important. It can help ensure you’re both on the same page and mean you feel more confident that they’d make the right decisions if they need to.
Here are four topics you should cover.
1. The responsibilities of an LPA
Becoming an LPA is a big responsibility. If you plan to name a loved one as an LPA, it’s important they understand what is involved and they’re comfortable with the role.
2. Your preferences for health and care
There are two types of LPA. When naming someone to make health and welfare decisions on your behalf, they will have the power to choose things like whether you move into a care home and the medical treatment you receive.
It can be difficult to think about needing care or serious treatment, but it’s important to discuss these issues. It can help ensure that your loved one makes decisions that are in line with your wishes. So, covering key issues like the type of care you’d prefer and life-sustaining treatment is important.
3. How you’d like them to manage your finances
The second type of LPA covers property and finances. Your LPA may collect your pension, pay bills, and manage your bank accounts and investments on your behalf. They may also make decisions like selling your home or giving gifts to your family.
If you have a financial and estate plan in place, sharing the details with your LPA can be useful. Again, it can help them understand your preferences and act according to your wishes.
4. Set out specific instructions
An LPA must act in your best interests, but if you have specific instructions you want your LPA to follow, be clear about what they are.
You may, for instance, specify that you’d like them to consult your financial planner before they make any investments above a certain amount.
As well as a conversation, you can use your LPA document to provide extra instructions or record your preferences.
How to name a Lasting Power of Attorney
If you’re ready to name an LPA, you can fill in or print the necessary forms from the government’s website: gov.uk/power-of-attorney
The forms will need to be witnessed and signed by a “certificate provider”, who is there to ensure you’re acting of your own free will.
You can choose to fill in the forms yourself or seek legal advice, which could help you avoid mistakes.
You must register your LPA with the Office of Public Guardian for it to be valid. Registering each LPA will cost £82 unless you are eligible for an exemption or a remission.
If you’d like to discuss naming an LPA, including how we could work with someone you trust, please contact us.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
After the risk of pensions collapsing made headlines, here’s how your retirement savings are protected
Recently, you may have read headlines about how pension funds were close to collapsing. Naturally, you may be worried about your retirement savings and what protection is in place. Read on to find out.
In September, former chancellor Kwasi Kwarteng delivered a mini-Budget that included aggressive tax cuts. It led to market volatility and the pound falling in value. While the government has since reversed many of the measures, you may have heard that the volatility it caused placed some pensions at risk.
The Bank of England (BoE) said that pension funds with more than £1 trillion invested in them came under severe strain, and several of them were in danger of collapsing following Kwarteng’s statement. Some funds would have been left with negative asset value and wouldn’t have been able to meet cash demands.
The BoE stepped in with emergency intervention to calm the turmoil. It pledged to buy up to £65 billion of government debt to stabilise the markets.
The steps taken by the BoE were effective, but the news that pension funds could collapse due to political and economic uncertainty can be a worry. However, there is protection in place.
The Pension Protection Fund protects defined benefit pensions
Much of the concern about pensions collapsing was about defined benefit (DB) pensions, also known as “final salary” pensions.
A DB pension is often considered the gold standard of pensions, as they will provide a reliable income for the rest of your life. The income provided is usually calculated based on your average salary and how long you’ve been a member of the scheme.
Many DB pensions also come with other benefits, such as providing an income for your partner or dependent children if you passed away.
DB pensions are now less common as they represent a significant commitment from the pension scheme. As life expectancy rises, they’ve become more expensive to administer. However, they are valuable for retirees as they offer financial security and are often generous.
If a DB pension scheme collapsed, the Pension Protection Fund (PPF) could protect your retirement income.
According to the PPF, it protects millions of people who belong to a DB pension scheme in the UK and pays pension benefits to more than 260,000 people.
If your DB pension becomes insolvent and cannot provide you with the pension they promised, the PPF could provide compensation instead.
If your pension scheme qualifies, the amount of pension compensation you’d receive would depend on if you’ve reached the scheme’s pension age or not.
- If you are under the pension age, you’d be entitled to 90% of the pension amount you had built up before the scheme became insolvent.
- If you are over the scheme’s pension age or start drawing your pension early due to ill health, you’ll receive the full pension.
- People receiving a survivor’s pension, such as widowers or children, will normally qualify for 100% of the pension income.
One important thing to note is that your income may not increase annually by as much as you expect through the PPF.
Many DB pensions provide an income that rises in line with inflation to preserve members’ spending power throughout retirement. However, increases in PPF compensation are capped at 2.5%, which could be significantly below expectations in a high inflation environment.
You can find a full list of pension schemes that are covered by the PPF here: ppf.co.uk/schemes/index
The Financial Services Compensation Scheme covers defined contribution pensions
Much of the turmoil reported in the news related to DB pensions, rather than defined contribution (DC) pensions. However, there are still protections in place for DC pensions that could give you peace of mind.
With a DC pension, you will make contributions, which benefit from tax relief, and are usually invested through a fund. In most cases, your employer will also need to make contributions on your behalf. When you retire, you will have a pot of money that you can use to create an income.
If your DC pension scheme collapses, you will often be covered by the Financial Services Compensation Scheme (FSCS).
- You can claim up to 100% of your pension, with no upper limit, if your pension provider fails.
- If your self-invested personal pension (SIPP) operator fails, you can claim up to £85,000 per person, per firm.
Pensions are complex, and you can check how protected your pension is here: fscs.org.uk/check/pension-protection-checker
The FSCS will not provide compensation if the investments held in your pension have not met your expectations or fall in value. So, it’s still important to understand your risk profile and choose a fund option that’s suitable for you.
Contact us to talk about your pension
If you have questions about your pension, including how your savings are protected and what you can do to get the most out of them, please contact us.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.
Behavioural finance: 5 effective ways you can reduce the impact of bias
When you need to process information, it’s common to take shortcuts and rely on bias. It’s an approach that can be useful in some situations, but it can also lead to decisions that aren’t right for you.
If you’re making financial decisions, you know you should focus on facts, but emotions and other influences can creep into the decision-making process.
Last month, you read about some of the ways bias may affect your financial decisions. From herd mentality to confirmation bias, it can have a larger effect than you may think.
So, what can you do to reduce bias? Here are five effective ways you can focus on what’s important.
1. Learn to recognise when bias could be affecting you
One of the first things you can do to reduce the effect of financial bias is simply be aware that it could happen.
Understanding why bias happens and when it may affect your decisions means you’re more likely to take your time to think things through.
Asking yourself questions can be useful:
- Is this investment appealing just because others are buying shares?
- Am I dismissing information because it doesn’t paint the picture I want?
- Have I researched my other options?
Sometimes just remembering that bias could occur is enough to make you take a closer look at your decisions.
2. Take your time when making financial decisions
While making quick decisions can be useful in some aspects of your life, taking a step back and giving yourself some time is often valuable when making financial ones.
Decisions around investing or your retirement could affect your wealth for years to come. So, it’s worth giving them the attention they deserve and thoroughly researching your options.
You’re more likely to overlook important information if you make a snap decision. To compensate for this, you may instead rely on biases or gut feelings. While it may feel right at the time, it means you could be making decisions that don’t make financial sense for you.
3. Tune out the short-term investment noise
One of the reasons that biases can affect investing is that it can be all too easy to focus on short-term market movements.
A company’s shares soaring or tumbling dramatically in a day makes a great headline or talking point among friends. But rarely is it something you should act on and it’s easy to attach too much importance to these short-term results.
When you first create an investment strategy, you should set out your long-term goals and how you’ll achieve them. Investment decisions should focus on the long term to reflect this. While looking at long-term performance may not be as exciting, as the peaks and troughs often smooth out, it can help you stick to your plan.
While it can be difficult, tuning out the noise and market volatility can help you focus on your investment strategy.
4. Scrutinise the decisions you make
When making financial decisions, playing devil’s advocate can be useful. It can help you question why you’re making certain choices and fully explore alternatives.
If someone else was asking for your advice, what questions would you ask? Would you be satisfied with the way they interpreted the data? Trying to look at your decisions from an outside perspective can be valuable. It allows you to re-evaluate the information and see if you draw the same conclusion.
5. Work with a financial planner
Sometimes, simply having someone to discuss your decisions with can help highlight where bias may be occurring.
As financial planners, we can work with you to create a financial plan that focuses on facts and long-term goals. Having a tailored financial plan can give you confidence and mean you’re less likely to act on bias.
We’re here to answer your questions too. So, next time you see an investment that you’re tempted by, but you aren’t sure if it’s right for you, you can contact us. Having someone to turn to can reduce the chance that you react to news or information quickly, rather than giving yourself time to process it.
If you’d like to arrange a meeting with us to discuss your investments or overall financial plan, please get in touch.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Your autumn statement update and what it means for you
It has been a tumultuous year in British politics, with three prime ministers and four chancellors holding office.
After the calamitous “mini-Budget” ushered in the demise of Liz Truss and Kwasi Kwarteng, new chancellor Jeremy Hunt has delivered his first autumn statement.
Hunt’s speech came at a tricky time for the UK economy, with inflation at a 41-year high and the Bank of England (BoE) reporting that the economy is expected to be in a recession for a prolonged period. Hunt said his plan was designed to “strengthen our public finances, bring down inflation and protect jobs”.
Here are the key points of the autumn statement, and what they might mean for you.
A reduction in tax-free allowances and exemptions
As part of his plan to raise tax revenue, the chancellor announced reductions to two key tax allowances.
Capital Gains Tax
The Capital Gains Tax (CGT) annual exempt amount will fall from £12,300 to £6,000 in April 2023, and to £3,000 in April 2024.
This means that you will only be able to make profits of £6,000 on non-ISA investments – such as company shares or second homes – in the 2023/24 tax year before CGT becomes due.
Dividend Tax
The Dividend Allowance – the amount you can earn from dividends before Dividend Tax is paid – will be reduced from £2,000 to £1,000 in April 2023, and then to £500 in April 2024.
If you receive any income from dividends, it’s likely that you will pay more tax on these dividends from April 2023 onwards.
These two combined measures will raise more than £1.2 billion a year from April 2025.
Inheritance Tax thresholds frozen for a further 2 years
The Inheritance Tax (IHT) nil-rate band has been at its current level of £325,000 since April 2009. The additional residence nil-rate band is set at £175,000 and normally applies if you leave your home to a child or grandchild.
These two thresholds had already been frozen until 2026. The chancellor announced an extension to this freeze, meaning that the nil-rate bands will remain at these levels until at least 2028.
Qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an IHT liability.
As house prices and asset values rise, it is likely that more and more estates will face an IHT bill over the next five years.
A cut to the level at which you pay additional-rate Income Tax
In a considerable change of direction from the former administration, Hunt reduced the threshold at which individuals pay additional-rate Income Tax.
Unlike his predecessor, Kwasi Kwarteng, who abolished the additional rate of tax (45%) – a move that was swiftly reversed – Hunt’s announcement means higher earners will pay 45% tax on more of their earnings.
The 45% rate will now apply for earnings above £125,140 rather than the previous level of £150,000. It means if you earn £150,000 or more, you will pay just over £1,200 more in Income Tax each year.
Hunt also froze the Income Tax Personal Allowance – the amount an individual can typically earn before paying Income Tax – at the current level of £12,570 until 2028. Additionally, he fixed the higher-rate threshold at £50,270 and the National Insurance thresholds at their current level to 2028.
All these measures are also likely to increase your personal tax burden. As earnings rise, more of your income will be subject to tax than if the allowances had risen in line with inflation.
The State Pension “triple lock” to be honoured
Under the “triple lock”, the State Pension increases each year by the higher of:
- Inflation, as measured by the Consumer Price Index (CPI) in September (of the previous year)
- The average increase in wages across the UK
- or 2.5%.
After months in which no senior politician would commit to honouring the government’s pledge, Hunt announced that he would increase the State Pension in line with inflation.
This means pensioners can expect a boost of just over 10% to their State Pension from April 2023. For someone on the full, new State Pension, that will represent an additional payment of more than £900 a year.
Pension Credit will also rise by 10.1% in April 2023 and benefits will be uprated by inflation, too.
As a result of uprating both working age and pension benefits, around 19 million families will see their benefit payments increase from April 2023.
An increase in the Energy Price Guarantee
Hunt announced that the government’s Energy Price Guarantee – an initiative of the Truss administration – would continue in its present guise until April 2023.
Under the guarantee, for six months from 1 October 2022, the average household will pay energy bills of around £2,500 a year.
The scheme will then become less generous from April 2023. The guarantee will rise to £3,000 for a further 12 months, meaning your energy bills will likely rise again in the spring.
The government say this equates to an average of £500 support for households in 2023/24.
There will be additional support for more vulnerable households.
Increase to windfall taxes
Jeremy Hunt announced a significant increase in windfall taxes. The oil and gas companies’ tax rate will increase from 25% to 35% of profits on UK operations from January 2023 until March 2028, extended from December 2025.
There will also be a 45% tax on profits of older renewable and nuclear electricity generation.
Together, these measures will raise more than £55 billion from this year until 2027/28.
Stamp Duty reductions to end in 2025
In September’s “mini-Budget”, Kwasi Kwarteng announced some increases in the thresholds at which Stamp Duty would be payable.
The £125,000 threshold increased to £250,000 while he increased the minimum threshold for first-time buyers from £300,000 to £450,000.
Jeremy Hunt announced that while these changes will remain, they will now be time-limited, ending on 31 March 2025. They are designed “to support the housing market and the hundreds of thousands of jobs and businesses which rely on it”.
Other measures
National living wage
Hunt announced the largest-ever rise in the UK’s national living wage. For workers aged 23 and over, it will rise by 9.7% to £10.42 an hour from April 2023.
This represents an increase of more than £1,600 to the annual earnings of a full-time worker on the national living wage and is expected to benefit more than 2 million workers.
Electric vehicles
From April 2025, electric cars, vans, and motorcycles will begin to pay Vehicle Excise Duty in the same way as petrol and diesel vehicles. The government says that this will “ensure that all road users begin to pay a fair tax contribution as the take up of electric vehicles continues to accelerate”.
Health and social care
Hunt announced spending of £2.8 billion in 2023/24 and £4.7 billion in 2024/25 for adult social care, to help the most vulnerable.
He also committed an additional £3.3 billion in 2023/24 and a further £3.3 billion in 2024/25 to improve the performance of the NHS.
Furthermore, the chancellor announced that the lifetime cap on social care costs in England due to come into force in October 2023 will be delayed by two years.
Education
There will be an increase to the education budget of £2.3 billion in 2023/24 and £2.3 billion the year after, taking the core schools budget to a total of £58.8 billion in 2024/25.
Business rates
There will be a £13.6 billion package of business rates support over the next five years.
The business rates multipliers will be frozen in 2023/24, and upward transitional relief caps will provide support to ratepayers facing large bill increases following the revaluation. Additionally, the relief for retail, hospitality, and leisure sectors will be extended and increased to 75%.
Corporation Tax
As confirmed in October 2022, the main rate of Corporation Tax will increase to 25% from April 2023.
Infrastructure projects
The chancellor confirmed the government’s commitment to High Speed 2 (HS2) to Manchester, the Northern Powerhouse Rail core network, and East West Rail, along with gigabit broadband rollout.
Get in touch
If you have any questions about how the autumn statement will affect you and your finances, please get in touch.
All information is from the autumn statement 2022 document and the government’s autumn statement news bulletin.
The content of this autumn statement summary is intended for general information purposes only. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice.
While we believe this interpretation to be correct, it cannot be guaranteed and we cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained within this summary. Please obtain professional advice before entering into or altering any new arrangement.