Autumn Statement Preview
Ahead of the Autumn statement, here are some thoughts on topical issues which may or may not feature in the Chancellor Hammond’s statement on 23rd November.
- State Pension Triple Lock
- Pension Tax Relief
- Personal taxation
- Employee share ownership
- Infrastructure (and final salary schemes)
- Account switching
- Corporate taxes
- Other outstanding items or possible announcements
The May government has already proved itself quite comfortable ditching Cameron legacy policies and developing its own voice and agenda. Even since the summer, the imperative to create distance from the previous administration has strengthened. Anyone in any doubt of the importance of recognising and accommodating the demands of the many voters who feel let down by the political elite, need only look at the 4 million votes cast for UKIP in the UK at the last general election, the UK’s Referendum result and at the stunning victory of Donald Trump in America.
So whilst this is still nominally the same Conservative government elected on the same manifesto as the one which existed before the Referendum, the reality is that pragmatism is the order of the day. We have already seen evidence of this with the abrupt cancellation of the deeply flawed Secondary Annuity policy, even though it would have generated some additional short-term revenue.
We know a Balanced Budget is less of a priority and that the Autumn statement is likely to be down-graded from the ‘second annual budget’ it had become under recent Chancellors; this was already being talked about at the Tory conference back in September. So it is possible the Autumn statement will actually be something of a non-event.
That being said, what policy measures are might be on Philip Hammond’s ‘to-do’ list?
In spite of recent form for ditching legacy policies, I do expect the Lifetime ISA to go live in April next year; with all the talk about intergenerational inequality, it would be a hard one to ditch. The Legislation is well on its way through parliament, it has been through Committee and is heading towards its third reading. It may not be a great addition to the ISA stable and in the long term we at Hargreaves Lansdown would like to see it rolled into one big Super-ISA but for now, we hope and expect that it will go ahead in April 2017.
The State Pension Triple Lock
The triple-lock is a difficult policy to unpick. To do so would be to remove a totemic benefit from a cohort of the population with a high propensity to vote. The DWP Select Committee has recently published a report arguing for a move to a double lock involving an earnings link with an inflation under-pin, and the ditching of the 2.5% element. There is no doubt that the Triple-Lock is not sustainable in the long term; by definition it would mean transferring an ever greater share of national wealth to a minority, to the detriment of the majority.
There is never going to be great moment to announce this decision. The easy political answer would be to kick the can down the road and worry about it later; or better still, let a future Chancellor worry about it. There is also the Cridland Review due to report next year on state pension age, which might provide a handy scapegoat for any decision in this arena.
A concession for the WASPI campaigners?
The women campaigning for the reversal of their state pension age increases are running out of time; give it another couple of years and they’ll all be past their new state pension age. New pensions minister Richard Harrington has already gone on record saying there’ll be no new concessions. A court case is in the offing. The government could back down and allow them some mitigating measure such as the option to access their state pension early at a reduced rate. It looks unlikely though.
Pension tax relief
Further pension tax changes are only a matter of time: a case of when, not if. George Osborne left unfinished business, which will probably have to be addressed within the term of the current parliament. There could be more tinkering at the margins, for example on the Annual Allowance or the Lifetime Allowance, or possible something more substantial, such as the fundamental principles of tax relief. Either way, I don’t think we’ll see a lot in this Autumn statement; it feels too soon, so at most just possibly the announcement of a consultation. I’d look to the Spring Budget as more likely.
A Fiscal Stimulus? The previous Chancellor pledged to increase the Personal Allowance to £12,500 and the higher rate threshold to £50,000. If Philip Hammond wants to stimulate the economy, one option would be to put more money in people’s pockets and into the high street, albeit at the cost of increased government borrowing. He could bring forward these tax threshold changes but a more useful intervention would be to raise the threshold at which National Insurance becomes payable (currently £8,060 for individuals).
Employee ownership of businesses
We may well see an announcement on employee share-ownership, possibly some extension of the SAYE scheme, just possibly a tax penalty for those listed businesses which don’t offer this. Theresa May’s idea of putting ‘employees on the board’ appears to be unable to surmount the walls of resistance thrown up by employer representatives such as the IoD and the CBI, not to mention the Treasury. So extending employee share ownership as an alternative might be an acceptable compromise. The maximum monthly saving amount is now £500, which is more than enough for your typical worker on average pay; possibly the government will introduce scope for an extended discount on the shares, thereby increasing the potential returns to employees.
Infrastructure (and final salary pensions)
On the one hand the government desperately wants to channel investment capital into the economy; it wants to the big asset managers to finance an infrastructure boom to stimulate the economy. On the other hand it can’t be seen to be giving in too much to the vested interests of big business. We could see measures to stimulate house-building; possibly even tax penalties for any house-builders who hoard land.
Another interesting area is final salary pension scheme funding. The Treasury spends billions in tax relief for these schemes (far more than it does on individuals’ contributions) and at the moment companies are pouring huge amounts into schemes as deficit reduction contributions, all tax deductible. It wouldn’t be surprising to see the Treasury impose some form of conditionality on these contributions, for example by requiring an allocation to infrastructure investment in exchange for the continued tax breaks. Final Salary scheme consolidation is also long overdue as these schemes shift towards run-off. This is no easy thing to achieve and the government is not inclined to allow any watering down of the past promises made to scheme members; nevertheless, this is fertile territory for intervention.
The 7 day account switching guarantee currently only applies to Current Accounts. It would be an easy win for the government and a popular move (and cost-free as far as the Treasury is concerned) to extend this guarantee to deposit accounts too. It would also help to address the problem of depositors being seduced by teaser rates and then progressively fleeced over subsequent years after the rates have been quietly cut.
The government needs inward investment, it needs jobs; ideally it needs development capital which will draw the country’s economic centre of gravity away from the South East, thereby rebalancing the ludicrously distorted housing market.
Possible measures include:
- Accelerating George Osborne’s planned cut in Corporate Tax to 17%, which is not due until 2020.
- Cutting employer National Insurance rates
- Introducing targeted tax breaks to encourage regionalised corporate investment
Other outstanding items or possible announcements
FCA consultation paper on giving financial guidance. This is important unfinished business from the Financial Advice Market Review.
The Pensions Dashboard. The pilot scheme for this is gathering momentum. It is a popular policy in both the Treasury and the DWP. There is no real need to flag it again in the Autumn statement, so if it does get a mention, it will be indicative of Hammond succumbing to that common affliction which seizes incumbents of 11 Downing Street, of re-announcing existing policies for the sake of a quick headline. Hopefully this won’t happen.
As indicated above, we do think 23rd November will be a relatively quiet affair, with the real fireworks being saved for the Spring Budget.
NOTES TO EDITORS
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