Sarah Coles, head of personal finance, Hargreaves Lansdown: “Jeremy Hunt decided to forgo the rabbit and the hat at the dispatch box in favour of a juggling act. Prioritise a National Insurance cut left him working furiously to generate cash through spending cuts and other tax hikes. It means we’ll be left with a financial juggling act of our own, with National Insurance cuts balanced against income tax threshold freezes. And fuel duty cuts easing the burden on one side, while hikes in other duties will mean painful extra costs for some.
And for investors there was a mixed bag. We welcome the consultation into the British ISA. However, unfortunately, there was no reprieve from cuts to capital gains tax and dividend tax allowances planned for April. And disappointingly, there was no rise in the ISA allowance, both of which would have helped support the government’s investment agenda.
1. National Insurance cut could save you £754, but it’s not quite what it seems
Any tax cut will help ease the burden, and the 2p National Insurance cut will make a real difference to how much working people have in their pockets. The more you earn, the more you save, so while a higher rate taxpayer will save £754, someone on a salary of £30,000 will save £349 a year – or £29 a month.
However, this comes alongside the notorious freeze in the personal allowance and the higher rate tax threshold, which means more people paying higher rates of tax. When you factor them both in, higher earners are still better off, but, those earning less than £19,000 will actually be worse off. Meanwhile pensioners, who gain nothing from these cuts, will also be counting the cost.
2. Disappointment over tax allowances
The decision to plough ahead with the halving of the capital gains tax and dividend tax thresholds in April, is as predictable as it is disappointing. They will fall to a miserly £3,000 and £500 respectively, so it’s hard for investors to plan tax-efficient income and gains outside an ISA or pension. It’s a frustrating move that flies in the face of plans to encourage UK investment. This new tax blow will make it even more essential to consider using your allowances each year – including your ISA.
The capital gains tax cut on property will provide a small boost for property investors, but it still remains one of the least tax-efficient ways to invest – not least because the stamp duty rules for those buying multiple dwellings will be abolished. Investors still pay tax going in, tax on rental income, and still more tax on sales than is paid on profits from investments.
Yet again, there was no change to the ISA allowance – aside from the consultation of a £5,000 rise with the introduction of a British ISA. So far it hasn’t shifted at all since 2017 and would need to be hiked to over £27,000 just to keep pace with inflation. It means we either have to save or invest a smaller proportion of our income each year, or we’re exposed to an increasingly harsh tax environment.
3. Consultation into a new British ISA
Hunt announced a consultation into a British ISA. ISAs are a popular way to get people investing for the first time. During the consultation we will explore how best to support people investing in British companies. It’s essential that the ISA framework is kept simple.
4. Confirmation of the NatWest share sale in the summer
There is likely to be strong interest in the NatWest share sale, which will be the highest profile public share offer since the Royal Mail IPO more than a decade ago. Giving retail investors the opportunity of a slice of ownership in NatWest is a welcome move, given that they have been left out of previous sales, which have been reserved for institutional investors.
5. A British savings bond – fixed for three years
The British Savings Bond from NS&I will offer a guaranteed savings rate over three years. All eyes will be on the rate available, because even savers who want to buy British with their cash will not want to accept a disappointing rate in return. We’re expecting more details later today.
With the Bank of England set to cut rates in the coming months, savers will need to think carefully whether they want to wait for this bond, or fix now, while they can still secure a great rate.
It’s also worth noting that most savers are currently choosing easy access and shorter-term fixed rates, partly because three-year bonds are generally offering poor value compared to shorter fixes. Given this is a three-year bond, it will need to be a very attractive rate to inspire much interest from savers.
6. NS&I has been charged with raising more money next year
NS&I’s net financing target has been raised to £9 billion. However, given that it raised more than this in the last tax year – at £10.9 billion, it may not be the shot in the arm that savers may have hoped for. Given it needs to raise less cash, and the backdrop of expectations that the Bank of England will start cutting rates in the coming months, the next move for these bonds is likely to be a cut. This is generally bad news if you are holding premium bonds because it could mean a cut in the prize rate, which ultimately will mean Premium Bond savers, will stand a lower chance of winning a prize. To add insult to injury, the expected funds raised from the Green Savings Bonds was also cut from £1billion in 2023-24 to £0.5billion in 2024-25, so these are unlikely to get much generous either.
7. There’s a fairer deal on child benefit for singles and those caught by fiscal drag.
The government will consult on changing the higher income child benefit charge to a household basis. The child benefit rules that penalised single parents were always incredibly unfair. It’s hard enough managing a household on a single income, without the system being stacked against you, so the decision to move to a household basis is a welcome change.
In the interim, from this April the threshold will be raised from £50,000 to £60,000 and the top level of withdrawal to £80,000. After a decade of being rooted to the spot, this will be welcome, but there was scope for a bigger rise. If it had risen with average wages since it was introduced in January 2023, it would be £71,774.
One of the easiest ways to take yourself out of the child benefit trap is to pay into a pension.
8. The government committed to lifetime pension pots
However, we can’t expect anything overnight. It has committed to exploring the model and introducing it in the long-term. It means in the interim we will need to work harder to keep track of multiple pots as we change jobs.
9. Your vices will cost you dear
Last year’s alcohol duty rise was delayed to August, this one has been frozen to Feb 2025. It would otherwise have gone up by 3%. But tobacco duty will rise with inflation. There will also be a consultation on a tax on vapes, to be introduced in October 2026, at which point there will a one-off rise in tobacco tax, so there is an incentive to stop smoking and switch to vapes.
10. There’s relief for motorists as fuel duty is frozen
Fuel duty hasn’t risen with inflation since 2011, so a freeze is usually nailed as soon as the maths behind the Autumn Statement emerges. This time a 13% rise has been hanging in the balance, because Hunt didn’t commit to it in the Autumn Statement, so it’s a huge relief for motorists that duty has been frozen and the 5p per litre discount has been extended for another year. It’s expected to avoid a £50 rise in costs for drivers over the next year. Fuel prices may have come down from the highs of summer 2022. However, they’re still significantly higher than before the last few months of 2021 before the invasion of Ukraine.”
SPRING BUDGET 2024
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