© Reuters. Autumn Statement: benefits, pension rules and tax changes rumoured
Proactive Investors – Jeremy Hunt’s autumn statement on Wednesday has drawn increasing interest as it draws nearer amid swirling rumours of what the chancellor may, or may not, announce in Parliament.
Hunt is due to grace the House of Commons with the statement on Wednesday, 22 November and industrial groups and businesses alike have been letting their feelings known early.
Changes to benefits
People claiming benefits could be told to seek roles that involve home working or risk losing payments, according to reports.
Speaking to Sky News ahead of Hunt’s statement on Wednesday, chief secretary to the Treasury, Laura Trott said: “If you can work as a principle, you should work, and that is what the government believes.
“That has been the thrust of all of our policies.
“Of course there should be support for people to help them into work or with issues that they are facing.
“But ultimately there is a duty on citizens that if they are able to go out to work that is what they should do.”
Given the government’s bid to push more people into the labour market, the comments reportedly appear to be the prelude to benefit cuts, which could see the likes of funding for prescriptions and legal aid for claimants scaled back.
Some 2.3 million people in the UK are out of jobs due to long-term illness, according to the Office for National Statistics, with the changes set to apply to those deemed fit to work by the government.
Pre-statement borrowing boost
Jeremy Hunt’s scope for tax cuts in this Wednesday’s announcement may well have widened with the release of government borrowing figures on Tuesday morning.
Over the first seven months of the financial year, public sector net borrowing excluding banks sat at £98.3 billion, as per Office for National Statistics data.
Though this was higher than the same period last year, a boost from tax reciepts saw the figure £16.9 billion less than the Office for Budget Responsibility had originally forecast in March.
As a result, analysts tip the chances are with Hunt offering some form of tax cut on Wednesday, especially considering prime minister Rishi Sunak’s own promises on Monday.
“It seems incredibly unlikely that the chancellor won’t bow to political pressure to hand out some kind of crowd-pleasing, headline-grabbing treat,” AJ Bell analyst Danni Hewson commented on Tuesday’s borrowing figures.
“But, his own rules will require him to tread carefully,” she added, “inflation has fallen but it is still way off target and those last few percentage points are usually the hardest to shift”.
Other recent developments
Jeremy Hunt is reportedly poised to reform pensions to bring the UK in line with the likes of Australia in giving people more control over their retirement funds.
According to the Financial Times, Hunt is set to lay out measures that would allow workers to designate a pension fund of their choice for employers to pay into.
Currently, employers are required to automatically pay into a pension scheme on employees’ behalf, but it is the company which picks this.
“British workers deserve to get the most out of their pensions, so we will make it easier for employees to keep track of their hard-earned savings,” said a Treasury source.
Due to the nature of the current system, millions of pension pots go unclaimed since they are effectively lost as people move between jobs.
“Helping people keep the same pension pot will stop billions of pounds being needlessly lost and make sure tomorrow’s pensioners benefit from every penny they save,” the source added.
A speech from prime minister Rishi Sunak on Monday offered a glimmer of what else will likely be unveiled by Hunt on Wednesday, including one hot topic: Tax breaks.
“Now that inflation is halved and our growth is stronger, meaning revenues are higher, we can begin the next phase and turn our attention to cutting tax,” he said in a speech.
Though the government’s hands had been tied by high inflation, figures last week showing the consumer price index (CPI) had subsided to 4.6% meant that inflation had been halved earlier than expected.
The question now is which taxes Hunt will look to tweak, rather than if any could be lowered at all.
Previously, rumours had circulated around inheritance tax, however, scrutiny that a change in the rate from 40% to 20% would disproportionately benefit the wealthy seems to have put paid to that.
Sentiment now appears to be that national insurance or income tax itself could be lowered, with the move likely set to be made with the prospect of a general election in mind.
The extent of these cuts remains to be seen though, with analysts warning of the likely boost to inflation that any drastic moves could cause.
“Any give-away is likely to be limited with last-year’s mini-budget fiasco still fresh in the memory,” Kingswood chief economist Rupert Thompson commented.
“The resulting near-term economic boost should be minimal, but the chancellor will be hoping the political gains will be rather larger.”
What’s previously been said?
One key development came last month as Zoom Video Communications Inc (NASDAQ:ZM) and eBay Inc (NASDAQ:EBAY) joined a suite of technology companies in calling for tax breaks to incentivise digital services spending.
Also signed by the likes of Shopify Inc (NYSE:SHOP) and HP Inc (NYSE:HPQ), an open letter sent to the chancellor on Friday argued such tax rebates could boost technology spending among small and medium-sized enterprises.
Citing the government’s own commitments to make Britain a “technology superpower”, including through the adoption of artificial intelligence (AI), the letter argued the UK risked falling behind without such incentives.
“Falling behind on digital adoption also means falling behind on the coming wave of AI deployment across the economy,” the letter cited by the Financial Times read.
“Unless we can correct this, economic growth, competitiveness, and the ability to become a science and technology superpower is at risk.”
Any budge from the government remains to be seen, with a spokesperson responding by saying that the UK has the lowest corporation tax in the G7.
Energy efficiency drive
On the subject of rebates, rumours from within the government suggest that tax could be returned in part for new homeowners who make home efficiency improvements.
Government ministers are reportedly mulling the move to begin offering partial stamp duty refunds if new homeowners improve insulation and windows within two years of moving in, sources cited by The Telegraph said last week.
This appears to be one of the policies in contention to be unveiled in Hunt’s statement, the sources added.
Pressure has indeed been piled on the government to do something about the UK’s generally poorly insulated housing stock.
Not only would this help reduce bills as houses consume less energy, businesses have previously argued, but could play a part in the UK’s efforts to stem carbon emissions – of which 17% is estimated to come from the UK’s housing stock.
Given energy bills have soared over recent years, pushed by the outbreak of war in Ukraine last year, any other updates on energy policy could be keenly awaited.
That is, calls have come thick and fast for the government to introduce a social tariff to aid the most vulnerable with the higher energy bills in the absence of last year’s direct support, so any update as the UK hits the colder months could be fitting.
Also on the energy side – offers of money off bills as a means to encourage those living near newly proposed pylons appears to be in the running for Wednesday’s update.
Tax breaks seem to be a key theme in the build-up to the statement, perhaps expectedly given the UK is poised for its next general election in the coming year or so.
However, given the still-high level of inflation and the government’s own steadfast commitment to tackling it by not risking any changes which could encourage further spending, Hunt’s hands seem largely tied.
Because of this, any personal tax cuts have been ruled out by Hunt himself, leaving him mulling so-called non-inflationary taxes.
This includes a potential reduction in the headline 40% inheritance tax rate, paid when property is passed on after the owner dies.
According to Telegraph-cited Treasury sources, this rate could be lowered, or the system even simplified to allow all families to pass on more between generations, though any changes are subject to prevailing economic conditions over the coming weeks.
In light of the continued low growth and high-interest environment, the Institute for Fiscal Studies warned Hunt ought to be wary of any tax breaks though.
“Fiscal and monetary policy must strike a delicate balance,” the independent researcher said earlier this month, noting that “ill-timed fiscal loosening […] might give a short-term economic sugar rush, but could prove unsustainable and ultimately mean a protracted recession”.
Charles Stanley chief investment analyst Rob Morgan noted that inheritance tax tweaks were a “traditional item on the pre-fiscal statement bingo card”.
Though reforms in some way are indeed on the cards, he acknowledged, any significant changes or abolishments are unlikely simply due to the costs to the government.
Aside from tax breaks and rebates, changes to the UK’s individual savings account scheme – which allows people to lock up some £20,000 free of charge – have been tipped.
Morgan referenced the last change to the scheme, which had come in 2016 when the tax-free limit was hiked to £20,000.
“An increase in line with inflation since then would take it to over £25,000,” he said, “so perhaps an extra £5,000 is being mulled over.”
Speculation has also built over inflation or average earnings growth-linked increases for state pensioners, who are set for an 8.5% hike in payments based on the latter next spring.
Given groans from those within the government that this triple-lock system includes “distorting” bonus figures, a change to the scheme could well be in the running.