Sharing analysis and thoughts about what we might see from Mr Hunt on Wednesday, Sarah Coles, head of personal finance, Hargreaves Lansdown, brings a wide ranging perspective from the HL team on what Hunt might have up his sleeve as follows:
“The pre-Autumn Statement weekend offered fewer pre-announcements than we’ve been used to, but a smorgasbord of rumours and leaks has been left on the table for us to pick over in the coming days, stoking rumours of a bumper Autumn Statement.
“The Chancellor Jeremy Hunt hasn’t ruled out any of the rumoured potential tax cuts and has left tantalising crumbs of clues that he will be focused on growth, and sensible about keeping inflation under control. In addition to tax measures, we are also expecting announcements to boost investment in equities, and reforms for both ISAs and pensions. It looks like there could be plenty of positive change in this statement, but at this stage the Treasury is always unlikely to be emphasising the bad news.”
The measures looking probable
1. Probable rise in NS&I Net Finance Target
Mark Hicks, head of Active Savings, Hargreaves Lansdown:
Raising money through NS&I could see a boost to rates that recently became significantly less rewarding. It might mean we see more movement at the top of the tables, which has to be good for savers. There is also the chance it keeps the pressure on high street banks to stop them cutting their already-disappointing rates. However, significantly higher rates would risk distorting the market at the expense of banks and building societies. For those smaller and newer banks that are already working much harder to attract savers: this is something they won’t thank the Chancellor for.
Savers poised to see how quickly NS&I will expand will sharpen their pencils and use any increased funding target to boost interest rates on their products. Given NS&I is ahead of the target already, it would have to be a big increase in funding to make a difference – especially given how far it cut the rates recently.
2. Potential reduction in income tax and/or National Insurance
Sarah Coles:
The over-riding argument for making changes to income tax or National Insurance is that this would help people with the biggest challenges in life: the fact their financial resilience has taken a beating from the rising cost of living. The freezing of the income tax thresholds has dragged 1.6 million people into paying higher rate tax and 2.2 million into paying basic rate tax. Since the thresholds were frozen, runaway inflation has inflicted far more tax pain than was envisaged when the measure was introduced, so it only makes sense to revisit whether the measure has already achieved its original aims, and whether the thresholds could come out of the deep freeze far more quickly than currently planned.
The concern is that it might boost demand, which could help fuel inflation, so the government will be keen to mitigate this risk. One option would be to announce the change now, but delay implementation until inflation is lower – possibly in April.
3. Possible inheritance tax cuts
A potential cut in the rate of inheritance tax could make political sense because it’s unpopular even among people who will never be subject to it. Jeremy Hunt can also deliver it without massive expense or inflationary risk, because it wouldn’t put more money in people’s pockets on an everyday basis.
It would be popular among those people keen to pass wealth on to support younger generations. But, if inheritance tax is set for changes, the system needs looking at properly with simplification at the heart of any review. For example, the gifting allowances have been in place for so long that they have lost an awful lot of their potency, making it more difficult for people to make lifetime gifts at the times when it can deliver the biggest benefit to their loved ones.
However, delivering this without additional income tax or National Insurance cuts would mean no real widespread support for those facing impossible challenges from the cost-of-living crisis.
4. Business tax cuts – including an extension to full expensing to help propel investment
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
The UK sorely needs a boost to growth with forecasts having deteriorated since the summer and the UK set to stagnate well into 2025. For companies to increase output, incentivising investment is crucial, so this mooted extension to full expensing will certainly be highly welcome. It allows firms to offset 100% of their capital expenditure against tax in the year that they spend the money on machinery and IT equipment. This would help with company cash flow and help boost demand through supply chains.
It would come as a relief for many UK-based businesses, which have had to deal with a toxic combination of higher labour, commodity and borrowing costs. It may also help bolster valuations of London-listed companies which have been weighed down by gloomy forecasts for the UK economy. There is still a very long way to go to push the country back up the global business investment league, given that it’s languishing at the bottom of the G7 on this metric. But what companies are really holding out for is for full expensing to be made permanent, as that will provide longer-term clarity and enable them to make commitments further into the future, particularly given the incoming increase in corporation tax.
5. Cash sweeteners for energy projects
The grindingly slow place of planning approvals is part of the reason key infrastructure projects have been beset with so many delays and increased costs. The government is clearly worried that net zero commitments won’t be reached if brick walls of opposition build up. The idea is that cash sweeteners for residents would turn more NIMBYs into YIMBYs – more likely to vote ‘yes in my backyard’ to plans to upgrade the electricity network, such as large pylon sites. Even though there will inevitably be claims that a postcode infrastructure lottery would emerge, it’s clear that incentives to steamroller opposition are needed. If the plans are announced they are likely to be a blueprint for other crucial projects, like connectors to improve the grid for wind power transmission. Recognising offshore wind as part of critical national infrastructure is set to be a bigger game changer to batting away opposition. This is because it would mean there would be a presumption that most other environmental impacts are unlikely to outweigh the urgent need for the energy source.
6. ISA reform and boosting retail investment
Sarah Coles:
ISAs are a popular product for people starting their investing journey. The Autumn Statement remains a key opportunity to make vital changes to ISAs to offer simplicity, predictability and the right incentives for long-term saving and investment.
Hunt could open the door to multiple ISAs of the same kind in a single tax year, injecting some much-needed flexibility and simplicity into the system, and making transferring ISA cash easier, so people can improve their returns. It will also prevent people from accidentally wandering into making expensive administrative mistakes.
We also expect the ISA to be opened to Long Term Asset Funds (LTAFs) which will increase choice and allow people to allocate a suitable amount of their portfolio to less liquid assets, in line with the FCA’s approach on retail distribution. At the moment, they can’t be held within an ISA, because ISA assets need to have the ability to be sold within 30 days. This rule could be applied on a permissive basis, so firms that are happy to distribute LTAFs could do so within an ISA. This would simultaneously mean real fixed term cash ISAs could be introduced – which can’t be accessed for a penalty – which could improve the fixed rate ISAs available on the market.
We may also get news of a wider consultation on the future of ISAs and LISAs – with technical measures for simplification alongside the possibility for more far-reaching changes. The key here is to ensure any changes genuinely make retail investing easier for people. The main barrier to retail investment is building confidence and here the review of the advice/guidance boundary has the potential to have a much greater impact than ISA rule tinkering. Take the idea of a British ISA, for example. A further ISA allowance for investment in UK companies adds unnecessary complexity and may not make much difference to investment in UK companies either, because investors could just rejig their holdings to syphon off the UK ones to the UK ISA and invest more internationally. 80% of HL share trading ISA investors choose UK companies now and simply boosting the overall allowance would achieve similar results in a simpler way.
There was no news on a potential rise in the overall allowance, which, would be a shot in the arm for investors battered by cuts in the allowances for dividend tax and capital gains tax. It would automatically encourage more investment in UK companies too. There is still hope though, because Hunt could be keeping his powder dry on some positive announcements until the day.
There are also other approaches that could make investing in UK equities more popular, including cutting stamp duty, doing more to enable retail investors to access secondary capital raising rounds, and reversing the proposed cuts to capital gains tax and dividend allowances due in April. So far these have gained little focus in the debate, but they remain sensible options that could join the array of potential changes on the table.
7. Pensions
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown:
Pensions triple lock
Big decisions still to be finalised include whether to increase the pensions triple lock by average earnings of 8.5%, or to strip out bonuses and one-off payments, lowering the rise to 7.8%. We support a longer-term reform of state pensions uprating to make it more predictable for people.
Pensions small pots
The DWP will release their plans on small pots shortly aiming to address the current system where employees switch from one pension scheme to another as they change jobs. With an average of 12 jobs held during each person’s working life, they are in danger of losing track of some of them. A lifetime pension would allow savers to keep one pension pot for all of their working lives.
HL has long supported a lifetime pension and building pensions around people rather than building pensions around employers.
Measures to boost pension funds’ exposures to UK equities
We welcome measures to boost UK equities and a vibrant home market is an essential component to boost retail investment. We need a strong home market for investment and measures to support greater consolidation of defined contribution pension schemes should be focused on driving better outcomes for investors.
Lifetime allowance
More widely we could also see more detail on the removal of the lifetime allowance as well as more certainty on the tax treatment of death benefits from a pension. This follows industry concerns that government was looking to impose income tax on pensions inherited from someone who dies before the age of 75.
8. Room for LISA improvements
Helen Morrissey:
It would be incredibly disappointing if Hunt decided not to take the opportunity to make small changes to the LISA that would make it fairer and even more effective. We still think there’s room to cut the LISA penalty. If people need to withdraw money for any reason other than a first-time property or after the age of 60, the 25% penalty currently not only claws back the Government bonus to save, but also applies an additional 6.25% penalty based on the amount invested. This is a horrible price to pay for trying to do the right thing. We also think it’s only fair that the limit on the price of a property you can buy with a LISA is raised to reflect rising house prices. The house price thresholds should also be increased to reflect the rise in house prices since these thresholds were set in 2017.
We’d like to make the LISA a more attractive vehicle for saving for retirement for the self-employed, by raising the age that anyone can open and pay into a LISA to 55. Self-employed LISA holders accessing before age 60 would also benefit from a reduction of the penalty to 20%. The HL Savings & Resilience Barometer found that those two measures could help 1.2 million households that have a self-employed earner paying basic rate tax – a group that are chronically underprepared for retirement.
