This year’s Autumn Statement focused on reducing the current high level of inflation and restoring the UK’s economic stability and credibility. Chancellor, Jeremy Hunt, has announced that there will be spending cuts and tax rises of around £55bn.
The content of the Autumn Statement was as expected and at the time of writing financial markets have reacted calmly compared to former Chancellor Kwasi Kwarteng’s mini-budget in September 2022 that caused market mayhem.
The Pension Triple Lock is back!
The Chancellor confirmed that the Government will fulfil their pledge to protect the State Pension Triple Lock after it was suspended last year due to a post-Covid rise in wages. This means that pensioners will see an increase in their State Pension in April 2023 in line with September 2022 Consumer Prices Index (CPI) inflation i.e. a whopping 10.1% increase.
Sarah Garnish, a Consultant at Quantum Advisory, said:
“The Prime Minister was true to his word and kept vulnerable individuals ‘at the forefront of his mind’. The increase will bring a welcome relief to millions of pensioners, who are heavily reliant on the state pension. At a time when prices are rising and money is tight, this will help to ensure that many pensioners don’t fall into poverty.”
Increase in the National Living Wage
In a further bid to help vulnerable individuals the Chancellor announced an increase in the National Living Wage of 9.7% from April 2023, this means that the National Living Wage will increase to £10.42 an hour, for those aged 23 and over. This is the largest ever increase and is expected to benefit over two million low paid workers, increasing annual earnings of a full-time worker on the National Living Wage by over £1,600.
Sarah Garnish, a Consultant at Quantum Advisory, said:
“With the National Living Wage rising, those employers with salary sacrifice arrangements will need to ensure that employees earning the National Living Wage where their salary after salary sacrifice goes below this new threshold are opted out of the salary sacrifice arrangement.”
Further freeze on Income Tax and National Insurance Thresholds
The picture doesn’t look quite so rosy for taxpayers however with the freeze on income tax and national insurance thresholds being further extended to April 2028.
Thanks to the effects of ‘fiscal drag’, more taxpayers are already seen to be moving into higher rate tax brackets due to the rise in inflation and income growth. The freeze will see this continue over the coming years, meaning millions will be paying more tax on their incomes.
Threshold for the top rate of tax lowered
Tax payments for higher rate earners will also increase as the Chancellor announces that the threshold for the top rate of tax will be lowered from £150,000 to £125,140. This would mean that those earning over £150,000 will be paying an extra £1,200 per annum in tax.
Sarah Garnish, a Consultant at Quantum Advisory, said:
“Higher rate tax earners affected by this change may find it more attractive to pay additional pension contributions rather than paying additional tax. This may be even more attractive as the further freeze mooted to the Lifetime Allowance on pension savings has not come into fruition and remains frozen until April 2026 at £1,073,100.”
State Pension age review
In 2014, the State Pension age was legislated to increase from age 66 to 67, with the change phased in between 2026 and 2028. The Autumn statement confirmed that the Government are currently reviewing the State Pension age and considering whether the original timetable put in place is still appropriate.
The government will need to review factors such as fiscal sustainability, economic context, up to date life expectancy data and fairness to both pensioner and taxpayers. The review is set to be published by the Secretary of State for Work and Pensions in early 2023.
Sarah Garnish, a Consultant at Quantum Advisory, said:
“Given the financial backdrop we are currently in and the fact that people are living longer we expect the known increase to the State Pension age will happen faster and the age will increase even further over time for the State pension to remain sustainable.”
Sarah Garnish
Consultant
Quantum Advisory