What it means for you and the environment
As has generally been the trend under the current Chancellor, many of today’s announcements were heavily trailed to the media in advance, including rises in the national living wage and minimum wage, ending the public-sector pay freeze, as well as new higher spending settlements for the NHS, social care, education, and other areas. The number of pre-announced measures from the Treasury perhaps appeared even greater than usual, earning a notable rebuke from the Deputy Speaker moments before the Chancellor’s speech. Such was the extent of the Chancellor’s media blitz (eyes on No 10 perhaps) that we even found major news outlets discussing his ‘socks & sandals’ combo on Tuesday evening bulletins.
Rishi Sunak’s address reiterated and built on the mantra of a high wages, high skills economy and ‘levelling-up’ agenda. The latest forecasts produced today by the Office for Budget Responsibility suggest a quicker recovery from the pandemic than expected, with the economy growing by more than 6% next year and unemployment peaking at just over 5%. These positive OBR figures gave the Chancellor room to announce an overall increase of £150bn for government departments during this parliament, representing the largest rise ‘this century’ in his own words.
Much of the budget therefore focussed on expenditure plans, including initiatives in developing the green economy. The ‘rabbit’ pulled out of the hat was the adjustment to taper on Universal Credit which combined with the increase of minimum wage will be beneficial for many of the working poor – but hardly life changing.
Surely the biggest own goal, coming three days before the commencement of COP26 in Glasgow, was the announcement of a reduction in Air Passenger Duty for domestic flights. Once again the power of the airlines trumps the need for a sustainable transport system.
Despite the fine words, once ‘The Red Book’ had been analysed overnight it’s clear that the combination of higher inflation, the previously announced tax rises and extended freezes on all personal tax allowances means than many will incur a net increase in tax and cost of living as a result of budget measures and more people will be drawn into higher rate tax and inheritance bands.
Measures on sustainable finance:
There were relatively few notable policies with direct implications for the finance sector, perhaps not a surprise given the flurry of policy measures announced in last week’s ‘green finance roadmap’ and ‘net-zero strategy.’
While climate change did not feature heavily (the words not even uttered in the Chancellors speech), we did see the following relevant measures outlined:
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a recommitment for the UK to resume its target to spend 0.7% of national income on overseas aid before the end of the parliament.
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a requirement for the National Infrastructure Commission, which advises government on long-term infrastructure challenges, to consider biodiversity in its recommendations.
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The UK Government controversially bypassing Holyrood to invest £170m directly into Scotland as part of the first round of its Levelling Up Fund.
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Further commitments and spending on electrification of UK vehicles and their supply chains.
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New funding to encourage more people to walk and cycle.
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Expenditure to decarbonise buildings, including support for tens of thousands of low-income households to make the transition to net zero while reducing their energy bills.
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Investment in Carbon Capture, Usage and Storage (CCUS) and the UK's offshore wind sector.
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Creation of a Net Zero Hydrogen Fund, set to support jobs and investment across the UK.
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But of concern to many, a continuing commitment to nuclear power, including £1.7bn to facilitate a final investment decision on a large nuclear project.
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The £385m Advanced Nuclear Fund, which will develop the next generation of advanced modular reactor technologies, and the new £120m Future Nuclear Enabling Fund which will help nuclear projects address barriers to entry.
Budget Summary
To understand what the implications are for your own personal finances, here is our summary1 of the key points from today's Budget and a reminder of the announcements in the March Budget.
Pensions and savings
Pension top-ups for low earners - Low earners with earnings less than their personal allowance can miss out on tax relief if they are members of schemes where employee contributions are collected from gross pay before tax. HMRC will identify these individuals and each will become entitled to a top-up from 2025/26, averaging £53 a year.
Regulatory charge cap for Defined Contribution (DC) pension schemes
The Government will consult further on the charge cap, broadly 0.75% applied to default investment arrangements in DC automatic enrolment schemes, to unlock remaining barriers for DC institutional investment into illiquid investments, by accommodating certain performance fees that exist for these types of investment. This announcement could potentially lead the way for certain schemes to invest in socially and environmentally beneficial long-term assets such as social housing and green infrastructure.
Pension tax relief - There were no changes to pension tax relief in the Chancellor’s Budget.
ISAs - The 2022/23 annual subscription limits for adult and junior ISAs will remain at £20,000 and £9,000 respectively.
Previously announced:
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Lifetime allowance (LTA) - frozen at £1,073,100. There will be no inflationary increases to the LTA; it will remain at its current level until April 2026.
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State Pension ‘triple lock’ - In recent years, State Pensions have been uprated each year by the higher rate of CPI, 2.5% and the average increase in earnings (known as the ‘triple lock’). However, for tax year 2022/23, the earnings element has been suspended. This means that, in 2022/23, State Pensions will increase by 3.1% (the September CPI figure).
Income tax
Dividends - It was confirmed that the rate of tax for dividends will increase by 1.25%. This will mean the new dividends rates for individuals will be 8.75% (basic), 33.75% (higher) and 39.35% (additional). The rate for trustees will be 39.35% on amounts in excess of the trust’s standard rate band.
Allowances and thresholds - The personal allowance will remain frozen at £12,570 with the basic rate band also remaining frozen at £37,700, meaning that the higher rate tax threshold remains at £50,270. The personal allowance and higher rate threshold will remain fixed until 2025/26.
Scotland - The Scottish Budget will take place on 9th December when we can expect to hear of any changes to the rates and bands for Scottish taxpayers. Of course, the Scottish rates of tax only apply to non-savings income. So Scottish savers will continue to pay tax on savings and dividend income in line with the rest of the UK.
Capital Gains Tax
Property payment window - With immediate effect the time limit for reporting gains and paying tax on residential property gains will increase from 30 to 60 days.
No further changes announced.
Previously announced:
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The annual exempt amount will remain frozen at £12,300 for individuals (and personal representatives) and at £6,150 for trustees of settlements, until 2025/26.
Inheritance tax
No further changes announced.
Previously announced:
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Both the nil rate band and residence nil rate band will remain fixed at £325,000 and £175,000 respectively until April 2026.
Corporation tax
No further changes announced.
Previously announced:
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Corporation tax is set to rise to 25% from April 2023. However, small companies with profits below £50,000 will continue to pay at the current rate of 19%. There will also be a reintroduction of tapering relief for businesses with profits under £250,000 so that they pay less than the main rate.
National insurance
The Budget confirmed that an extra 1.25% will be added to the rates of National Insurance for 2022/23 for employees, employers and the self-employed to help pay for the reforms to social care. It's intended that the 1.25% rise will become a separate standalone levy from 2023/24.
New Consultations
VAT treatment of fund management fees
The government will consult on options to simplify the VAT treatment of fund management fees. This might have some future repercussion on cost of management via discretionary managed services.
1Data source: abrdn & Quilter 27.10.2021
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