The Chancellor of the Exchequer Jeremy Hunt has claimed that the government’s economic plan ‘is working’, but that the work is by no means done.
Mr Hunt delivered his Autumn Statement to the House of Commons on Thursday afternoon (November 22) and appeared eager to tell his fellow MPs that the tide was turning in the battle against inflation.
The latest figure for consumer price inflation is 4.6% for October 2023 – down from a peak of over 11%.
Mr Hunt said that the Office for Budget Responsibility (OBR) predicted that headline inflation will fall to 2.8% by the end of 2024, before falling to the government’s 2% target in 2025.
However, some forecasters were keen to point out that the 2% inflation target will now take longer (until 2025) than previously thought, and that is one of the reasons that banks are warning that interest rates won’t fall anytime soon.
The OBR also put a dampener on the country’s future growth outlook, saying that economic growth in 2024 had been downgraded from 1.8% to 0.7%, while in 2025 the growth figure had been reduced from 2.5% to 1.4%.
Meanwhile, the percentage of the nation’s income that goes to the taxman is still set to rise to a post-war high says the OBR.
So just what were the main takeaways from Mr Hunt’s statement, and how do they affect the general public?
Tax bands
Mr Hunt confirmed that the main rate for employee national insurance will be cut from 12% to 10% (it is currently charged at 12% on earnings between £12,571 and £50,271 – and 2% on anything above that).
The Chancellor said that normally any changes would come in at the start of the new tax year, in April 2024, but instead he was looking to introduce emergency legislation in order to bring the cut in from January 6th 2024.
The Chancellor claimed that 27 million people would benefit from the cut in national insurance – and that it would be worth around £450 for someone on ‘average earnings’ of £35,000 per annum.
National Insurance is a fixed percentage of the money you earn which is deducted from your wages. NI payments, which were first introduced in 1911, contribute to the cost of benefits, the NHS and the state pension.
The Chancellor’s latest move will make no difference for employees under pension age who earn less than £12,570 a year, as they pay no NI. People over the state pension age, even if they are still working, also do not pay NI.
- Mr Hunt also revealed that he was abolishing altogether the Class 2 National Insurance paid by the self-employed.
Tax break for businesses
The Chancellor announced that for every £1 that a business invests in IT, machinery and equipment, they can claim back 25p in corporation tax.
Companies will also be allowed to do this in one go, as opposed to having to offset the cost against corporation tax over a longer period.
State Pension Triple Lock
The Government’s commitment to the State Pension, benefits and tax credits (known as the Triple Lock) will be ‘honoured in full’ Mr Hunt said.
He says that from April 2024 the full new state pension will increase by 8.5% to £221.20 a week, worth up to £900 more a year.
Pension reforms
The Chancellor stated that he will consult on whether to give pension savers a “legal right to require a new employer to pay pension contributions into their existing pension”.
Mr Hunt claims that the proposed reform, thus giving people the opportunity to have ‘one pension pot for life’, could help unlock an extra £1,000 a year in retirement for an average saver (who has been saving into a pension from the age of 18).
If introduced, the ‘pot for life’ would give workers the right to nominate the pension scheme their employers pay contributions into, which those in favour of such a move say would address any difficulties faced by those people who have accumulated multiple pension pots after moving jobs.
Benefits
Benefits will increase next year by 6.7% confirmed Mr Hunt.
This applies to working-age benefits, such as Universal Credit, disability benefit and other means-tested benefits.
National Living Wage
The minimum wage, known officially as the National Living Wage, is to increase by more than a pound to £11.44 per hour from April 2024.
It is currently £10.42 an hour for workers over 23.
The Chancellor has decided the rate will also apply to 21 and 22-year-olds for the first time.
It means a full-time worker aged 23 on the wage would receive a rise worth £1,800 a year. A 21-year-old would see an effective £2,300 annual rise.
Two sides of the coin to consider!
In terms of the effect this latest Autumn Statement has on someone’s personal finances, there is always two sides of the coin to consider!
The cut in National Insurance may well leave more cash in workers’ pay packets, but as wages go up the ongoing freeze in the income tax thresholds could well drag more people into higher tax brackets.
The 6.7% rise in benefits is significant, as is the end of freezing the Local Housing Allowance (helping people meet their rising rent repayments), yet Mr Hunt has warned that millions may now face more stringent tests over the entitlement in benefits.
And while the rate of rising prices, and the cost of living, is lower than it has been over the last couple of years, the effect of the higher interest rates, particularly through mortgages, is still to be felt by hundreds of thousands of households whose current deals will run out in the next year.
The key personal questions to take from all this new information are:
- Do you understand how all this affects you?
- Does the Autumn Statement have an impact on your finances?
- Will you be better or worse off?
- Do you have a plan in place to deal with any rising costs?
If you don’t know what it all means for you and your finances then Lifetime can help. Our financial wellbeing programme offers education, guidance, support and knowledge.
Regardless of personal wealth, the question Lifetime’s coaches and financial specialists get asked most frequently is some version of: “Will I be ok? Do I have enough?”. It can cause all sorts of worry if you don’t know the answer. We want to help you get a better picture of your financial health, so that you can make better informed money choices.
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