Autumn Statement rumours

It’s that time of the year again when a handful of policy ideas swirl around the money columns like leaves in the autumn breeze. Whether they settle in the chancellor’s statement next month in one form or another remains to be seen, but it’s definitely worth keeping a close eye out – by Rob Morgan

When is the Autumn Statement?

The Autumn Statement is the Chancellor of the Exchequer’s second financial statement of the year, following the Spring Budget. This year’s event takes place on Wednesday 22 November.

As usual, there is much speculation about what the Autumn Statement will contain, with three main areas circulating. A modification of the state pension triple lock and changes to inheritance tax are both perennial grist for the rumour mill, while possible changes to ISAs are more unusual and intriguing.

State Pension triple lock

Changes to the triple lock at some point wouldn’t be a surprise. Under the terms, the state pension increases each year by the highest of inflation, wage growth and 2.5%. The prospective increase next year is currently 8.5% with wages having grown by that amount in the relevant period to July, which was higher than the annual rate of CPI in September when that component is measured.

It means pensioners are in line for another hefty income hike following the 10.1% increase this year. A full new state pension would jump to £11,501 next April from £10,600 this year. This has led to speculation around how sustainable the triple lock is given its growing drain on the national finances. A tweak to the calculation does looks like a distinct possibility at some point, but maybe not just yet.

Could inheritance tax be changed?

A reform of inheritance tax (IHT) is another traditional item on the pre-fiscal statement bingo card. Dubbed the least popular tax, many more families may find themselves paying it because of a freeze to the tax threshold and higher asset prices, especially our homes.

IHT is charged at a rate of 40% on the value of estates worth more that £325,000, but if you are married or in a civil partnership you can pass on your allowance to your partner, meaning no tax is payable until the combined estate is above £650,000.

A further boost to the allowance, or ‘nil-rate band’, can come from passing on the family home, meaning many couples can leave an estate worth up to £1 million to loved ones IHT free. There are also various annual gift provisions that mean you can reduce the size of your estate tax-free while alive.

Inheritance tax could be reformed in some way, but it would be a significant cost to abolish it entirely. Receipts amounted to approximately £7bn in the 2022/23 tax year[1] and they are set to increase as the value of estates rise and the thresholds outlined above remain frozen, an effect known as ‘fiscal drag’. However, IHT accounts for less than 1% of total tax receipts overall, so it could be somewhere the chancellor looks to win support from voters.

Could the ISA allowance increase?

A third notion currently doing the rounds is more novel and eye catching: an extra ISA allowance for UK stocks.

ISAs (or Individual Savings Accounts) are one of the most tax-efficient ways of saving because any returns are tax free. The Treasury is reportedly looking at increasing the amount that can be saved into them, as well as whether to merge Cash and Stocks and Shares ISAs into a single product. Currently, everyone can save up to £20,000 each tax year, which can be spread between the pair in any proportion.

On the surface, an additional allowance for UK stocks presents an elegant solution to two issues: The UK’s waning shareholder culture and the general lack of interest in the UK stock market, as well as the increasing tax burden on small shareholders. The present ISA allowance has remained frozen for several years and the dividend allowance, the annual tax-free amount a taxpayer can earn in income from shares, has all but withered away; it’s due to fall to just £500 from next tax year (24/25), a tenth of its level in 2017.

An extra tax-free share allowance is not an entirely new concept. In the 1990s, Personal Equity Plan (PEP) allowances, the forerunner to ISAs, came in two types: a £6,000 ‘General’ PEP that could be invested in any investments from funds through to shares, and, an additional ‘Single Company’ PEP that had to be, as the name implies, a single share.

The resurrection of this idea, presumably without the high risk of concentration in a single company, is potentially good news but it is at odds with calls for ISA simplification. Over the years a once-simple ISA regime has morphed into a many-headed beast with such variations as Help to Buy, Innovative Finance and Lifetime ISA popping up, potentially exacerbating lack of consumer understanding. It also raises a significant number of questions about how it would be designed and implemented:

• How much would any extra allowance be? The ISA allowance was last increased in 2016-17 from £15,400 to £20,000 and an increase in line with inflation since then would take it to over £25,000, so perhaps an extra £5,000 is being mulled over.
• What constitutes a UK investment? UK-listed shares or a subset? Would investment trusts or other collective vehicles be included?
• Would this be a separate extra allowance or part of an expanded ISA wrapper? The former would create yet another product and the latter would represent a challenge for monitoring and reporting. Any segregated allocation would rise and fall at a different rate to the rest of the investments in an account, and selling and buying activity would further complicate matters.

Questions abound, so we will have to wait to see whether this particular Autumn Statement rumour, along with any of the others, comes to fruition.

Rob Morgan is Chief Invesment Analyst at Charles Stanley