Autumn Statement Sentiment

by | Dec 4, 2014

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An IFA Magazine round-up of sentiment regarding the Chancellor’s Autumn Statement.


Octopus Investments


Simon Rogerson, CEO of Octopus Investments, said: “UK high growth small businesses are the engine room of our economy. These companies, which represent less than 1% of the UK business community, have a key role to play in creating our future economic prosperity. High growth small businesses are creating 5,000 jobs a week on average and were responsible for 36% of our economic growth in 2013.

“The Chancellor acknowledging their economic value is just the beginning, we need to get firmly behind them and ensure the UK develops the right skilled workforce, continues to attract talent from overseas, provides greater access to funding and lightens the tax burden on these businesses so they can realise their full growth potential creating jobs and economic growth along the way. Today’s Autumn Statement contains some positive steps towards achieving this.”

“It’s good to see the Government emphasising the need for a balanced economy and the need for growth to be shared across the economy. While more than two thirds of high growth small businesses are based outside of London and the South East, more can be done to encourage entrepreneurial activity to thrive in our regions. Investing in infrastructure and interconnectivity are key to achieving this and investing in a northern powerhouse has the potential to see an increase in the number of high growth small businesses in this region.”


On the exclusion of all companies substantially benefiting from other government support for the generation of renewable energy from also benefiting from tax-advantaged venture capital schemes.

John Thorpe, Business Line Manager for EIS at Octopus Investments, said: “EIS has been subject to numerous legislative changes over the years as the government consistently reviews it to ensure it continues to fulfil its policy objectives. At this stage, it’s too early to comment on the proposal set out in the Autumn Statement without further information. However, as the largest provider of EIS in the UK, we are used to changes and look forward to continuing to find attractive investment opportunities for our EIS investors. We have been active in the non-renewable energy sector for some time as we believe energy as a whole offers interesting opportunities for our investors.”

On changes to Enterprise Investment Scheme (EIS) legislation.


John Thorpe, Business Line Manager for EIS at Octopus Investments, said: “We always welcome the introduction of legislation that benefits our EIS investors and encourages potential investors to support smaller companies. The digitalisation of EIS should simplify the administrative processes EIS investors, their advisers and qualifying companies are required to complete, making EIS an even more accessible planning tool. In addition to this, proposals regarding the deferral of gains eligible for Entrepreneurs’ Relief make it more attractive for those who have successfully built and sold a business to reinvest in the next generation of EIS companies by removing punitive tax implications. Both these changes will help foster further investment into businesses across the country and should continue to broaden the appeal of EIS to a wider investor community.”

On changes to legislation allowing the transfer of Isa tax free allowances between spouses.

Mark Williams, Business Line Manager for Inheritance Tax at Octopus Investments, said: “The proposals regarding the spousal transfer of Isa tax free allowances are welcome news for married couples, but they fail to address the inheritance tax liabilities on Isa savings for a surviving spouse, or for unmarried savers or those already widowed. Investors still need to consider how to plan for the impact of inheritance tax on their Isa savings as, thanks to a frozen nil rate band and increasing house prices, it’s becoming an increasingly mainstream issue.”


On allowing gains that are eligible for Entrepreneurs’ Relief (ER) and deferred into investment under the Enterprise Investment Scheme (EIS) or Social Investment Tax Relief (SITR) to benefit from ER when the gain is realised, encouraging successful entrepreneurs to invest in these companies.

George Whitehead, head of Octopus Venture Partners, said: “It is great to see the incentives for investing through an EIS become even more compelling for seasoned entrepreneurs to support the next generation of UK business. Angel investors who have been there and done it before as an entrepreneur can add significant value to developing companies. We have first-hand experience of this through our own angel network that co-invest alongside some of our funds and can play a leading role in delivering the growth of successful businesses.”

On measures to support UK enterprise and smaller companies.


Alex Macpherson, head of Ventures, commented: “The Government continues to be open to new ideas to support entrepreneurship. Today’s Autumn Statement builds on existing successful initiatives like Entrepreneurs Relief, Venture Capital Trusts, Enterprise Investment Schemes and the Angel CoFund, and shows this is a Government that is listening to entrepreneurs. These measures, and those announced today, are making the UK the number one location for the best and brightest entrepreneurs to base themselves in the UK. It is great to see the UK’s position confirmed as the leading entrepreneurial economy in Europe and we welcome the Government’s efforts to ensure enterprise in this country continues to flourish.”


Kleinwort Benson


Comments from Mouhammed Choukeir, Chief Investment Officer: “The Autumn Statement delivered today by George Osborne, Chancellor of the Exchequer, is significant for two reasons. First, the economy is the chief concern for many voters in the upcoming general election in May. Second, investors are scrutinising economic growth fundamentals to take cues on financial markets.

“The Chancellor announced that the UK economy is bouncing back from the blows of the global financial crisis, and currently leads the developed world growth table. Indeed, the Office for Budget Responsibility (OBR) now estimates gross domestic product (GDP) growth of 3.0 per cent in 2014, over a tenth higher than estimates earlier this year. However, growth figures beyond this year – already underwhelming – have been revised down further; they average about 2.3 per cent over the next five years. This is a reminder that while the UK may be a growth leader this year, it is particularly sensitive to a slowing world economy, and particularly to a moribund Europe.

“Another concern is that inflation is forecast to be significantly below the Bank of England target rate: 1.5 per cent this year, 1.2 per cent in 2015 and 1.7 per cent in 2016.

“However, budget deficits are expected to come down and a surplus has been forecast for the next five years. Crucially, the overall debt levels are forecast to be reasonably manageable. Latest estimates suggest that net debt will peak at 81 per cent of GDP in the 2015, declining to 73 per cent at the end of 2019. While less growth is forecast, a lower debt ratio is possible because the interest payable on outstanding debt is expected to be lower.

“Perhaps the most significant announcement in the Autumn Statement is the complete overhaul of the UK Stamp Duty regime. Instead of home buyers paying Stamp Duty at a single rate dependent on the purchase price, it will now be calculated on a tiered basis. The new rates will be: 0 per cent on the first £125,000; 2 per cent on the share above that up to £250,000; 5 per cent up to £925,000; 10 per cent up to £1.5 million; and 12 per cent on everything above that.

“In general, anyone purchasing a home worth up to £500,000 will benefit by paying less; about 98 per cent of home buyers fall in this range as per the Chancellor (the average house price in the UK is about £272,000). However, anyone purchasing a house worth more than £500,000 will be worse off. For example, a £5 million property would have had to pay a 7 per cent flat tax equalling £350,000. As of midnight tonight, that figure will be £513,750.

“Even before the Stamp Duty announcement, home prices in London’s most prime residential areas fell 0.2% in November versus the previous month, the first time in four years. The Autumn Statement will likely exacerbate that trend. An early indicator of market reaction is the share price for Foxtons, a house broker that deals mostly in London and the Southeast, fell over 3 per cent following the Autumn Statement.

“More widely, however, markets are looking towards economic growth fundamentals to fill the void left by declining policy intervention. While there is much to cheer in the UK itself, slowing economies abroad will impact growth at home. However, while the scenario for growth is certainly challenging, lower debt figures and rising real wages provide a countering tailwind.

“Most importantly, although equity markets are more expensive today than they have been for the last few years, valuations are not overly stretched. Momentum for global equities remains positive and sentiment is currently oversold. We still believe that there is reasonable value in global equities, especially when compared to the other core asset classes. Nothing in today’s Autumn Statement changes that conviction.”



Dominic O’Connell, Executive Director, Head of Tax Trust & Estate Planning, said: “Chancellor George Osborne’s final Autumn Statement to the House of Commons before the general election had one big surprise, a few welcome measures, and perhaps little that we think is likely to be abandoned by the next government – whoever that turns out to be.

“The big surprise was a change in stamp duty on house purchases, which will now be graduated like income tax rather than jumping at each threshold. We believe this is a fairer approach that will be generally welcomed. While the change in stamp-duty calculation, which applies from midnight tonight, wasn’t completely unexpected having been advocated by some for many years, it was ultimately delivered with surprising speed. What impact the changes to this transactional tax will have on the other parties’ annual ‘mansion’ tax proposals remains to be fully seen.

“Other broad tax measures – as more widely expected – included an increase in the personal allowance to £10,600 from next April. There have been relatively significant increases to the personal allowance since the Coalition government has been in power and as referenced at the Conservative party conference their intention is for the personal allowance to increase to £12,500 by 2020.

“Unusually, in contrast to recent years, the increase will also be passed on to those paying higher rate tax with the threshold increasing to £42,385.

“Other welcome relief came in the form of proposals to retain tax benefits on ISAs and pensions of deceased spouses or civil partners, while business tax rates will be reviewed with a view to decreasing the burden on smaller companies.

“As expected there were a further raft of measures aimed at combating tax avoidance and aggressive tax planning, together with proposals to ensure multi-nationals with economic activity in the UK pay corporation tax on UK profits.”



Group strategist, Tom Elliott, said: “Change in stamp duty is welcome. But by biasing it so heavily on the wealthy it smells like another ‘soak the rich’ attack. Remember Kant’s maxim that we should treat everyone as an end in themselves, not a means to an end. Increasing the personal allowance from 2015 to £10,600 further narrows the tax base and increases the percentage of voters who don’t have skin in the game.

“Supply-side reforms are all welcome. Helping bring science into the commercial world, funding for post-graduate study and lowering the cost of apprentice training will help address our skills shortage. Roads are also welcome…but has many have commentated, haven’t we heard this announcement before?

“The obligatory fluffy policies? Another £2 billion on the NHS and taxation changes on multinationals. Tempting to see these as policies to appease voters ahead of next year’s election. The long term NHS funding problem requires acceleration of competition in the supply of services, while the UK’s position on corporate tax for multinationals remains highly ambiguous. How can you boat of being a ‘competitive’ tax environment and then squeal when other countries are still more competitive?

“George Osborne continues to do a believable job in presenting the government as guardians of sound fiscal policy. Despite offering increases in public spending in certain areas, which can be seen as trinkets ahead of next year’s election, he continues to talk of eliminating the structural deficit by 2017-18 and remains committed to his plan.

“However the plan continues to run behind schedule. The country’s £1.4 trillion total debt (around 80% of GDP) will rise by £91 billion this year, certainly this is less than the £97 billion increase seen in 2013-14, but the reduction seen this year is half what was hoped for in January.

“The budget deficit of around 4.5% is the second highest in the developed world (Spain is at 5.7%).

“To eliminate the deficit, and so halt the increase in total debt, Osborne is relying on two tools which carry with them their own problems –

1) Economic growth, to boost tax receipts and cut welfare payments. The lamentably weak rise in tax receipts, despite strong growth and falling unemployment, suggests to some economists that the economic growth is becoming increasingly dependent on low wage, part time jobs, which in turn reflects a lack of skilled labour. The OBR have warned that the output gap in the UK is smaller than previously thought, meaning that the long term GDP growth rate is probably well below the current 3%.

2) Cuts in public spending. He has promised not to raise tax further, which can only mean spending will be reduced. This could make austerity more politically charged than it has been so far. Much of the reduction in spending to date has been achieved through cancelling planned capital spending, which is politically easy. Few miss a road or hospital that hasn’t been built. But with road building schemes back in favour, and few planned capital projects left to cut, the axe must fall on current spending. As the wage bill for the public sector is attacked, there maybe a negative impact on GDP growth as household demand weakens, and almost certainly more noise from public sector workers.”



Max Chmyshuk, Founder and Managing Partner, said: “Any additional sum of funding for SMEs is welcome but the amount pledged falls disappointingly short of what is needed; and more importantly, banks face other commercial and regulatory challenges discouraging them from lending more to the SME sector. It’s much easier for them to deploy money to large corporates.

“The government must find ways in which to encourage SME lending by either forcing banks to lend more to SMEs or perhaps allowing alternative lenders into the FLS.  Many financially strong businesses are being rejected by banks even though they pose little risk of not repaying their credit.  In our first 10 months, we have lent over £3 million and we expect to triple our book size over the next year.  A large number of our clients were turned away by the big banks when they applied to them for credit, yet they are excellent clients of ours.”


Barings Asset Management

Christopher Mahon, Investment Manager and Director of Asset Allocation Research, said: “The Autumn Statement has been put together with an explicitly political agenda. With the election looming, this is about helping the coalition win in May. There is little here that will change the broad direction of the UK economy, but there are lots of eye catching smaller initiatives. While politically savvy, these aren’t without risk. For instance:

“Stamp duty reforms. These reforms create winners and losers, with the losers being buyers of expensive properties. These properties are overwhelmingly concentrated in London so there is a risk that London property market reacts badly to these reforms, with a cascading effect around the country.

“Devolving corporation tax. The welcome ambition to allow Northern Ireland to lower the level of corporation tax in the province to match those charged in the Republic carries the obvious challenge that existing UK corporate tax revenues are rerouted via NI, cutting the Treasuries overall take.

“Extending Funding for Lending. With much of ‘buy-to-let’ being classified as business lending, much of the FLS lending has in reality gone into housing, even when it has been earmarked for businesses. It is likely this trend continues, and true small businesses remain unable to obtain credit.

“The far more important question facing the UK is whether there will be an effective government of any colour after May 2015.  With polls as they are, there is a good chance of a far weaker coalition emerging, with a smaller majority. This may be Labour or Conservative led, but the overall majority it commands is likely to be smaller than the 36 seat majority won by Cameron and Clegg.  Indeed there is the real prospect of a third party such as the SNP or DUP being involved in any coalition. That means more mouths to feed in terms of special interest groups. Hence, there will only be a very limited ability of any government to deliver the austerity all parties agree is necessary. How markets react to the prospect of a far less stable UK government may well end up as one of the defining stories of 2015.”


Investec Wealth & Investment

Guy Ellison, Head of UK Equities, said: “The introduction of marginal rates of stamp duty changes will benefit the majority, though those at the top-end of the market will see a higher tax burden. From a market perspective this could weigh on the London-centric house builders and estate agents, for example Berkeley and Foxtons, whilst potentially favouring the more regional developers.

“The abolition of air passenger duty for under 12’s, moving to under 16’s in due course should provide a modest fillip for the airline industry. On the negative side, changes to tax relief for banks will see them making a greater contribution to the Treasury and may weigh on that sector.”

“A notably generous giveaway around ISAs will benefit savers and the savings industry, as any ISAs can now pass to a spouse tax free, accompanied by a modest increase in the annual tax rate. We will have to wait until next week to get the long awaited details on the rates for Pensioner bonds which were first announced in the March Budget.

“New tax proposals for multinationals deemed to be avoiding taxation on profits generated in the UK and the introduction of charges for non-domiciled individuals both reflect the Chancellor taking a tougher stance on those not deemed to be paying a ‘fair share’ of tax.”


HNW Lending

Ben Shaw, founder and director, said: “The IHT threshold has been too low for too long. With house price inflation many families have ended up with estates valued way more than £325,000 but are ‘cash poor’ and unable to pay their tax bill and release the proceeds of their relatives wills’. Some 16,000 estates pay IHT a year*, and we believe that a growing number of people are taking out loans to pay the subsequent bills.”


Lombard Odier Investment Managers

Salman Ahmed, Global Fixed Income Strategist, said: “Holders of UK gilts – remember it’s a global marketplace and that while the UK market stall is creaking under vast debts, the price of UK government bonds is set by what is happening elsewhere in the world marketplace:  low inflation and interest rates unlikely to rise any time soon. So as long as gilt investors keep looking outside the stall, things won’t look so bad!”


Social Venture Capital Trust

Patrick Reeve, Managing Partner of Albion Ventures, said: “We welcome the government’s commitment to growing the social investment market and believe an evergreen, quoted structure, similar to a  VCT, could prove popular among retail investors who are keen to see their money used to encourage positive social results.  However, the tax breaks will need to be thought through carefully in order to compensate for the inevitably modest investment returns and should  encourage the very long investment profile that social projects deserve.”


Fidelity Worldwide Investment

Trevor Greetham, Director of Asset Allocation, said: “George Osborne says the best defence against a global downturn is to press on with the ambitious deficit reduction plan. The markets prefer what’s going on in Japan where Prime Minister Shinzo Abe responded to economic weakness by postponing a tax hike and promising further government spending.

“When austerity was at its height early in the parliament the economy flat-lined and government debt continued to rise. Recent economic strength in the UK has been less about fiscal rectitude and more about direct measures to stoke up a housing boom. In that sense, cutting stamp duty is one last roll of the dice before the election.

“It isn’t obvious where the offsetting stimulus comes from if housing continues to slow and UK government spending is cut back as anticipated in the next parliament.”


Russell Investments  

David Rae, Head of LDI Solutions EMEA, comments on the gilt remit for this fiscal year: “The Autumn Statement and the Office for Budget Responsibility (OBR) fiscal forecasts have provided further colour on the state of the economic recovery. Expected growth rates for this year have been revised up as expected, but over the medium term, growth forecasts are lowered.

“Year to date, tax receipts have disappointed, primarily as a result of the employment profile. While there has been lower unemployment, this has typically been lower pay ranges and part-time resulting in a lower than expected tax take. Ordinarily, the worsening fiscal position would have led to an increase in gilt issuance to meet the cash shortfall. However, recent revisions to the historical Central Government Net Cash Requirement published in October have actually eliminated the need for extra gilt issuance this fiscal year.”

“The DMO have a further GBP 9.152bn of index linked gilts to issue this fiscal year, of which GBP 5.5bn will be by auction and GBP 3.6bn by syndication sales. The next supply of index linked gilts is the auction of 0¾% Index Linked Treasury Gilt 2034 planned for 11 December. This year issuance has been roughly equally split between short, medium, long conventional gilts and index linked gilts. We can expect a similar proportional allocation in future years. The higher proportional allocation of index linked gilts in recent years has been welcomed by pension funds.”

“The challenge for pension funds look to hedge liabilities will be reducing the overall borrowing requirement. As the economic and fiscal position in the UK improves, we will continue to see reductions in the borrowing requirement and gilt issuance. The OBR is forecasting a budget surplus of £50bn in 2019-2020 which would dramatically reduce the issuance of gilts and index linked gilts.

“What does this mean for pension funds?

“Conditions remain challenging for pension funds looking to reduce deficits and funding level volatility. Long dated gilts and particularly index linked gilts remain in short supply. With the prospect of improving economic and fiscal conditions, this is unlikely to change in the near term. A strategy that relies exclusively or very heavily on rising yields to recover deficits is unlikely to be successful. We do expect interest rates to increase from here and we are slightly under-hedged in response. However, the extent of this under-hedging is modest in the context of the overall risk allocation, and we are closely watching opportunities to dynamically manage hedge ratios.”


Aegon UK

Kate Smith, Regulatory Strategy Manager, on the pension and ISA tax changes: “Today the Chancellor continues his quest to set out fairer deal for savers, most people view their house as the major financial asset that they leave behind to their loved ones. The Chancellor has sought to put both pensions and ISA savings on an equal footing by encouraging people to view them as assets that can be passed on without punitive rates of tax.

“By incentivising long term saving, the Chancellor may encourage people to put more money towards their pension and ISA, safe in the knowledge, that should the worse happen, their saving will not have been in vain and that those closest to them will see the benefit.”


Barnett Waddingham

Commenting on the pension outcomes Malcolm McLean, senior consultant, said: “Apart from the proposed withdrawal of the 55% tax charge on inherited pension previously announced, the Autumn Statement contained no further significant changes to pensions.

“Given the radical changes that were announced in the Budget earlier this year, it comes as somewhat of a relief that the Chancellor has refrained from interfering with pension rules any further ahead of April 2015.

“There is still a lot of work to be done to implement and educate the public about the Budget changes, and the pensions providers and indeed the pensions industry as a whole will no doubt be breathing a collective sigh of relief due to the uneventful nature of today’s announcement.”


Hargreaves Lansdown

Danny Cox, Chartered Financial Planner, said: “Couples almost invariably manage their money jointly using individual tax wrappers such as ISA to shelter their savings and investments from tax. This change has righted a wrong in the tax system which was the source of deep frustration and additional cost for surviving spouses.”

Tom McPhail, Head of Pensions Research, said: “Confirmation that death benefits paid from annuities will enjoy the same tax treatment as income drawdown, is a welcome equalisation of the new rules. It means investors will not be penalised for selecting the security and efficiency which an annuity offers.

“This rule change will only apply where annuity payments are made for the first time after April 2015. This will no doubt be a disappointment to any widow or widower who is already receiving a survivor’s pension and who will not benefit from the new tax exemption, however it would have been a breach of accepted protocol if this tax break had been made retrospective.

“For the majority of pension investors looking to take money from their retirement savings from next year, the best answer is likely to be a combination of an annuity for certainty, security and a high absolute rate of income and an income drawdown plan for flexibility and the prospect of investment growth.”

“The decision not to tinker any further with pension contribution tax reliefs or allowances was a welcome one. It makes sense for the government to give the pensions industry breathing space to implement the very popular reforms announced in the Budget back in March.”



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