Like all smart politicians, Chancellor Jeremy Hunt talked up the need for Britons to “face into the storm” ahead of presenting his Autumn Statement.
But while some sections of society will have to play their part by paying more in taxes, the statement was nowhere near as painful as some commentators had been forecasting it might be.
A lot of the tougher decisions were delayed with scheduled public spending being maintained until 2025 and increases for the NHS and schools. Defence spending is maintained at 2% of national income.
State pension payments and means-tested and disability benefits will increase by 10.1% in line with inflation. The much talked about pensions “triple lock” is therefore protected.
There was, of course, some pain meted out with the tax-free allowance for dividends being reduced from £2,000 to £1,000 next year and £500 the year after. This is a body blow to business owners working hard to weather the current challenging conditions and will raise the question as to whether dividends rather than salary remains the most tax-efficient route.
Capital gains tax allowance will be cut from the current level of £12,300 to £6,000 next year and £3,000 from April 2024.
As you would expect, we will be working closely with clients who are impacted by the above reductions. In the case of CGT, it will be important to use allowances this year if appropriate and, going forward, we will consider alternative measures that will assist with tax planning.
While, the coming winter will undoubtedly be tough for many, particularly those living on a tight budget, the approach taken by the Chancellor in his statement will, one hopes, ensure that any recession is shorter-lived than had perhaps been previously forecast.
The Office for Budget Responsibility (OBR) said the UK economy would shrink by 2% over the totality of a recession, which started earlier this year and is expected to last just over 12 months.
Both inflation and interest rates look like they may be topping out before the end of this year.
There was a generally benign reaction from the markets to the Chancellor’s 53-minute statement, providing further evidence that they are reassured by the steady and sensible approach now in place, compared to the chaotic few weeks of early Autumn.
What is less clear is the longer-term plan for growth outside of a couple of eye-catching announcements around infrastructure and the go-ahead for the Sizewell C nuclear power station.
Depending on how the next couple of years go, this may not be the concern of a Conservative government with a General Election having to be held by January 2025 at the latest.
For our clients, the reaction to the Chancellor’s Autumn Statement should provide reassurance, but it is important to remember that investments are not focussed solely on the UK, but across the world.