Views on the News

What you’ll learn:

• Autumn Statement: Hunt cuts National Insurance rate but tax burden still rising
• Flash PMI: UK economy shows signs of recovery for first time in four months
• Major ISA reform offers savers more flexibility with tax free savings account.

Headline 1: Autumn Statement: Hunt cuts National Insurance rate but tax burden still rising

Chancellor Jeremy Hunt unveiled the government's tax and spending plans, and independent forecasts for the economy in his Autumn Statement last week.

National Insurance paid by employees will be cut from 12% to 10%, taking effect from 6 January. Hunt also made permanent a tax break for businesses that allows them to save on corporation tax by investing.

However, even with the cuts, the tax burden is still on track to reach a post-war high by 2028, according to the Office for Budget Responsibility (OBR). The OBR also forecasts that the economy will grow slower than expected at 0.7% next year instead of the 1.8% previously forecast.¹

Will Hobbs, Head of UK Multi-Asset Wealth: The usual warning applies here with regards to forecasts (not just the OBR’s). The economy has absorbed several shocks in the last few years, with the help of substantial support from the state. The outlook may be brighter than feared, with positive real wage growth an important strut.

Changes in the tax rates are unlikely to materially shift that outlook one way or the other. The evidence is mixed with regards to the relationship between changes in tax rates and growth rates in any case, even with regards to more substantial changes than those described by this budget.

Even so, the UK economy’s medium-term outlook may be less grim than widely feared. The arrival of the next leap forward in the technological frontier in AI and other areas may help wake the UK (and world) from its recent productivity slumber. History speaks of the state having many roles in industrial revolutions past, one of the most important is predictability.

Headline 2: Flash PMI: UK economy shows signs of recovery for first time in four months

Britain’s economy showed signs of picking up this month, according to a closely watched snapshot of private sector output, sending the pound higher.

The first ‘flash’ reading of the S&P Global CIPS PMI composite output index, one of the most up-to-date barometers for the economy, came in at 50.1 for November, the first positive reading in four months. Any reading above 50 implies an expansion of overall output.

The number was higher than consensus expectations and above the 48.6 posted for October and 48.5 in September.²

Will Hobbs, Head of UK Multi-Asset Wealth: The UK economy may be in a better state than feared as above. There is surely a slowdown coming in the US economy in the quarters ahead, which will feed through to the rest of the world. Nonetheless, the US consumer, still the single most important slice of demand for the world economy in aggregate, remains in robust health on latest readings. Beware missing the opportunities in amongst the continued doom of the press headlines remains the view of our team of investors here.

Headline 3: Major ISA reform offers savers more flexibility with tax free savings account

The rules on Individual Savings Accounts (ISAs) will be changed to allow savers to pay into multiple ISAs of the same type in one year and to facilitate transfers between providers.

From April 2024, people will be able to subscribe to multiple ISAs of the same type every year and to partially transfer ISA funds between different providers.

These changes will give people much more flexibility in how they use their ISA allowance, which in turn should help more people to use it to their maximum advantage.³

Clare Francis, Director of Savings & Investments: ISAs provide a great bedrock for getting people’s savings and investments working harder because returns are not taxed. The announcements in the Autumn Statement simplify ISAs, providing greater flexibility.

Under current rules you can open multiple accounts in a tax year but they need to be different types of ISAs. For example, you can open a cash ISA and a stocks and shares ISA, but not two cash ISAs or two stocks and shares ISAs.

ISA holders will also be able to partially transfer ISA funds in-year between providers from April 2024. Currently if you want to transfer money you’ve paid into an ISA this tax year, you have to move it all. Partial transfers are only allowed for money invested in previous tax years.

Once these measures are in place, savers and investors won’t need to be as worried about falling foul of the rules and will hopefully become more confident about using their annual ISA allowance to build up their savings and investments.