UK Autumn Budget 2023

4 min read

UK Autumn Budget 2023

The UK Chancellor of the Exchequer, Jeremy Hunt, delivered the government’s Autumn Statement 2023 on 22 November.

Importance of understanding the implications for businesses and individuals

Being informed about the UK budget helps people make more considered financial decisions, adapt to changes in the economy, and proactively manage personal finances in response to government policies and priorities.

Overview of theme of UK Autumn Budget 2023: avoid big government spending and high tax, and instead cut taxes and “reward hard work” with 110 “growth measures” for business.

Here are the are two key areas of focus from the announcement:

National Insurance Contributions cuts: costing around £10 billion. For the Chancellor, this was all about timing, with this specific tax cut coming into force in January next year (reduced from 12% to 10%). Aimed to accelerate the recovery of household income, which still remains significantly below pre-pandemic levels and represents the largest fall since records began in the 1950s.

Extending business investment: costing around £9 billion and aiming to increase investment levels in the economy. For businesses this provides much needed tax policy certainty, which should aid long-term decision-making.

What can individuals and businesses can do to adapt:

  • Review their budget and identify areas where they can cut expenses or reallocate funds based on changes in taxation or benefits.
  • Review their investment portfolio in consideration of changes in capital gains tax or other investment-related policies.
  • Stay informed about changes in tax rates, allowances, and exemptions.
  • Review their estate planning strategies in consideration of changes in inheritance tax or other related policies.
  • Understand the implications of any changes in income tax rates or allowances on your take-home pay.
  • Seek further education or training that aligns with government initiatives or incentives.

Here’s an extended look at UK Budget announcement (and a sneak peak of nudge's financial education):

Cuts to national insurance
The Chancellor revealed the rate for class 1 national insurance contributions (NICs) will be reduced by two percentage points, from 12% to 10%. Normally, a tax change such as this would take effect in April (the start of the next tax year), but the Chancellor said this will be in place from 6 January 2024 and benefit 27 million people.

This change means someone earning £35,400 a year will pay £450 less in NICs in the 2024/25 tax year, while employees who earn £50,270 and above will save £754.

As for the self-employed, class 2 NICs (currently £3.45 a week) will be abolished, and the rate of class 4 NICs will decrease from 9% to 8%. The Chancellor said these changes will save around two million self-employed people an average of £350 a year from April 2024.

Triple lock honored in 8.5% state pension uplift
There was speculation the government would deviate from the pensions triple lock, which would have hit pensioners struggling with inflation and the cost of living. However, this wasn't the case and it will increase the full state pension to £221.20 from April 2024, a boost of 8.5%. The Chancellor said this will be worth up to £900 more a year.

Benefits boosted by 6.7% – and changes for claimants
Similarly, there were rumors the government would uplift benefits based on the inflation rate for October rather than September, which was higher. However, the Chancellor announced the uplift will be determined by September’s rate, which means benefits such as universal credit will increase by 6.7% from April 2024. The government said this represents an average increase of £470 for 5.5 million households.

The Chancellor also outlined the government’s Back to Work Plan, which includes an overhaul of the “fit note process” to support more people to return to work after an illness, and reforms to the work capability assessment to help the long-term sick and disabled find suitable employment. The long-term unemployed, meanwhile, were warned that failure to engage with the Back to Work Plan’s intensive job seeker program would result in them being forced to take part in mandatory work placements. If they choose not to engage with the job seeker program, their benefits will be stopped.

The Office for Budget Responsibility (OBR) – a non-departmental public body funded by the UK Treasury – said the Back to Work Plan, together with measures announced in the Spring Budget, will increase the number of people in work by around 200,000 over five years. However, the plan received criticism from charities that said it could force disabled people into unsuitable jobs and cut financial support for the most vulnerable.

National Living Wage rises to £11.44
The National Living Wage (NLW) will rise from £10.42 to £11.44 an hour from April 2024, which means a full-time 23-year-old worker on the new NLW will see their salary rise by £1,800 a year.

This is currently the minimum wage for those aged 23 and above, but from April, this new NLW will apply to those age 21 and above. People in this age group are currently on a minimum hourly rate of £10.18, so the increase means a 21-year-old worker’s annual salary will increase by £2,300.

In addition to the change to the NLW, the National Minimum Wage for younger workers aged between 18 and 20 will increase from £7.49 to £8.60 an hour, while apprentice rates will increase from £5.28 to £6.40 an hour.

Alcohol duty frozen
All alcohol duty (a tax included in the price you pay on alcoholic drinks) will be frozen until 1 August 2024. This means there’ll be no increase in duty on beer, cider, wine, or spirits.

Tax on period pants abolished
Period products such as sanitary pads and tampons have not been subject to VAT since 2021, but this exemption did not extend to period underwear. However, from January 2024, the zero rate on women’s sanitary products will include period underwear. Campaigners said this will make the products more affordable.

Mortgage guarantee scheme extended
The mortgage guarantee scheme enables home-buyers to purchase a property with a 5% deposit, with the government offering lenders the financial guarantees they need to cover 95% of the mortgage on a property worth up to £600,000.

It was due to close to new applicants on 31 December 2023 but has now been extended for 18 months until the end of June 2025.

More ISA flexibility from April 2024
Under the current rules, you can only pay into one of each ISA type in the same tax year – meaning, for example, you can add funds to one cash ISA and one stocks and shares ISA.
From April 2024, you will be able to pay into multiple ISAs of the same type in the same tax year, so you could spread your allowance over a few cash ISAs if you want separate savings pots for different purposes. You’ll also be able to partially transfer ISA funds between providers, regardless of when the money was paid in.

Meanwhile, the expansion of innovative finance ISAs will give consumers the opportunity to invest in long-term asset funds and open-ended property funds with extended notice periods.

In addition, the minimum age for opening a cash ISA will increase from 16 to 18, and annual ISA subscription limits will be maintained in the 2024/25 tax year. This means a £20,000 limit across all adult ISAs (with a £4,000 limit on the Lifetime ISA, not including bonus), and a £9,000 limit on junior ISAs.

Inflation projected to reach 2.4% by the end of 2024
The inflation rate is currently 4.6% and the OBR’s economic and fiscal forecasts predict inflation will fall to 2.8% by the end of 2024 but won’t reach the Bank of England’s 2% target until mid-2025.

This means interest rates (which have been increased in a bid to counter high inflation) could stay elevated for some time. As such, interest rates on debt (including your mortgage) could stay high for the foreseeable, but so could rates on your savings, allowing you to earn more on your cash.

Plans for “one pension pot for life”
The government will consider reforms to the pension management system, including a consultation on giving savers the legal right to request their employer pay pension contributions into their existing pension pot, so they can have “one pension pot for life” over the length of their career. The Chancellor said this, along with other pension reform measures, could provide an extra £1,000 a year in retirement for an average earner saving from age 18.

Local housing allowance to increase
The local housing allowance (LHA) is set to increase from next April to support private renters who receive housing benefits. The LHA rate will cover the bottom 30% of local rents, with 1.6 million households set to benefit from £800 of extra support. It had been frozen in cash terms since 2020, despite high inflation and rising rents.

Measures to simplify Making Tax Digital
There are plans to simplify and improve the Making Tax Digital for income tax self assessment, effective from April 2026. The simplifications will include:

  • Removing the requirement for end of period statements
  • Changing the design of quarterly updates so they work on a cumulative basis, making it simpler for customers to submit corrections
  • Enabling customers to be represented by more than one tax agent
  • Introducing exemptions, including for taxpayers without a national insurance number
  • Simplifying processes for landlords with jointly owned property

Employers and businesses can help their people stay informed of changes to the UK economic outlook and participate in financial education to better navigate the world of personal finance.

Get in touch to find out how nudge can help businesses support their people.

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