The chancellor has announced a cut in National Insurance, a series of ISA reforms and an 8.5% rise in the state pension as part of his Autumn Statement.
Jeremy Hunt said the economy was “back on track” as he trimmed taxes and pushed for business growth ahead of next year’s election.
He said he had 110 growth measures, but joked in his speech “don’t worry, I’m not going to go through them all”.
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With the Bank of England forecasting a stagnant economy in 2024, Hunt insisted his plan would deliver growth and reduce the national debt.
We look at the various measures announced, and how they could affect your personal finances.
National Insurance slashed to 10%
About 27 million people will see a cut to their National Insurance (NI). The tax is currently charged at 12% on earnings between £12,571 and £50,271 – and 2% on anything above that.
But the 12% rate will fall by 2 percentage points to 10% from 6 January, 2024. The chancellor said he would bring in urgent legislation to make it happen earlier than the start of the 2024-25 tax year.
The average worker on a £35,400 salary will save about £450 a year. Anyone earning more than £50,270 will save the maximum of £754 a year.
It marks the third change in NI in three years – after the hike in April 2022 and the reversal in November of the same year.
National Insurance reform for self-employed
The chancellor said he wants to support the self-employed, such as “plumbers, farmers and delivery drivers” by reforming and simplifying their taxes.
Class 2 National Insurance contributions (NICs), which are paid at a flat rate of £3.45 a week, will be abolished. This will save the average self-employed person £192 a year. Crucially, their access to state benefits will remain intact.
Hunt also said he would cut the rate of class 4 NICs, from 9% to 8% in April. Both these reforms will save around two million self-employed workers an average of £350 a year.
George Parker, manager at the accountants Blick Rothenberg, said the abolishment of Class 2 NIC was a welcome change, but added: “The government was due to abolish it back in 2018. My gut feeling is the abolishment was to reduce HMRC’s cost of administering it, which was in excess of the revenue it generated – rather than for the benefit of the self-employed.”
“Pension pot for life”
The government will consult on giving pension savers the legal right to have a “pension pot for life”. The idea is to help workers keep track of their retirement savings as they move jobs.
Instead of the employer choosing the pension scheme, the employee would nominate where they want the contributions to go.
The reforms could unlock an extra £1,000 a year in retirement income for an average earner saving from age 18.
Aveek Bhattacharya, interim director at the think tank Social Market Foundation, said moving from an employer-led pension system to one where each individual has their own pot for life “could help avoid the clutter and inconvenience that many of us have experienced from accumulating multiple – often small – pots from different jobs.”
He added: “More fundamentally, it could shift the onus for pension savings from bosses to workers, which has the potential to boost engagement, personalisation and value for money.”
Triple lock honoured
Hunt said the triple lock will be honoured, meaning the state pension will rise by 8.5% in April.
The move will take the full new state pension to £221.20 a week, or £11,502 a year.
Hunt said this was “one of the largest ever cash increases to the state pension”.
It follows speculation that the government could have uprated the state pension by a smaller amount.
Making ISAs more flexible
The Autumn Statement document revealed that the government will make changes to simplify ISAs and provide more choice, “meaning it will be easier for people to choose the best ISA accounts for their needs and move money between them”.
It went on to say: “This involves digitalising the ISA reporting system to make it more effective, as well as expanding the investment opportunities available in ISAs to include Long-Term Asset Funds and open-ended property funds with extended notice periods.”
From April 2024, the government will allow multiple subscriptions to ISAs of the same type every year, while also allowing partial transfers of ISA funds in-year between providers.
The ISA allowance will continue to be £20,000 in 2024-25 (and subscription limits for junior ISAs and child trust funds will remain at £9,000). The lifetime ISA allowance will remain at £4,000.
Living Wage increase
The Treasury announced the biggest-ever increase to the National Living Wage, worth over £1,800 a year for a full-time worker.
The hourly rate will go up by 9.8% in April, from £10.42 to £11.44. Eligibility for the National Living Wage will also be extended by reducing the minimum age threshold from 23 to 21.
The Department for Business and Trade estimates that 2.7 million workers will benefit from the wage increase.
Gail Izat, managing director for workplace at Standard Life, commented: “Confirmation that the Living Wage will increase to £11.44 and apply to 21 and 22-year-olds for the first time from next April is welcome news and will offer some relief from inflationary pressures that hit the lowest paid so hard over the past 18 months.”
She added: “It has the added benefit of bringing more people into scope for pension auto-enrolment as anyone earning more than £10,000 aged 22 and over will become eligible.”
National minimum wage rates for younger workers will also rise: 18-20-year-olds will get a £1.11 wage boost to £8.60 per hour, while the minimum hourly wage for an apprentice will go up from £5.28 to £6.40.
What else did Hunt announce?
- Universal Credit and disability benefits will increase by 6.7%, in line with September’s inflation rate.
- A new £2.5 billion Back to Work Plan for those with long-term health conditions, disabilities and difficulties finding employment, which includes tough sanctions for those who can work but choose not to.
- A tax break that allows companies to deduct the full cost of investing in machinery and equipment from their tax bill is being made permanent. The chancellor called it the “largest business tax cut in modern British history”. The policy had been due to end in 2026.
- The government will legislate in the Autumn Finance Bill 2023 to remove the pension lifetime allowance. The measure will clarify the taxation of lump sums and lump sum death benefits, and the application of protections, as well as the tax treatment for overseas pensions, and transitional arrangements. This will take effect from 6 April 2024.
- Investors could see a NatWest retail share offer in the next 12 months, as Hunt said the government was committed to exiting its shareholding, subject to market conditions and sales representing value for money.
- The Mortgage Guarantee Scheme, which supports the availability of 95% loan-to-value mortgage products, will be extended for an additional 18 months until the end of June 2025.
- The sunset clauses for EIS and VCT income tax relief will be extended to April 2035. They previously limited the tax relief to shares issued before 6 April 2025.
- Alcohol duty will be frozen until 1 August next year.
