Fathom’s Autumn Statement wish list

Here we are on 21 November eagerly awaiting the Autumn statement on Wednesday. I’m sure on 22 November as Mr Hunt gets to his feet there will be much anticipation of what is to come. I’m sure we will hear about “cutting of red tape” and maybe something on tax avoidance and I’m certain pensions will get a mention and there are now rumours about tax cuts and changes to the benefit system to encourage people of working age back into work.. However rather than try and pre-empt the Chancellor’s pronouncements I thought I would write a wish list that would benefit our clients here at Fathom:

So in no particular order this is what I would like to see.

ISA wish list 

Increase the ISA allowance. The allowance hasn’t been increased since 2017 so you could argue that one is overdue. 

I would also like to see the Chancellor mandate investment into UK companies. 

Those of us of a certain vintage will remember Personal Equity Plans (PEP’s) introduced in 1986 by the then Chancellor, Nigel Lawson. The PEP was introduced to encourage retail investors (that’s us) to invest in UK equities and at least 50% of the assets needed to be held in UK companies or collective investments investing in the UK. PEP’s proved to be tremendously successful. I believe that any UK tax privileged product should have a reasonable percentage of its assets and holdings directed to investing in the UK.

Pension wish list

There has been some talk around the Chancellor encouraging UK pension funds to increase their exposure to UK investments. I’d really like to see this mandated (not just encouraged) but I don’t think it will be. What I do know is that it could provide a significant investment boost to the UK economy.

In the 1990’s as much as 50% of pension scheme assets were invested in UK equities. That figure has fallen dramatically over the last 30 years or so. You could argue that it is sensible to diversify and that up to 50% was far too high a figure to have invested in one market. However, back to the argument above. If you have a UK product where individuals and companies receive tax relief on their contributions and the funds grow tax free then there should be some expectation that they should allocate more than the current levels of investment towards the UK. This could take the form of infrastructure investment and private equity investment. Many small innovative, fledgling UK companies struggle to access capital and this would be one way of investing in the UK economy whilst potentially providing above average returns over the longer term. 

Inheritance Tax wish list

My wish, scrap it but find a way to encourage people who inherit to invest in UK Plc.

Most developed economies have some form of “death tax”, For example Spain has a progressive tax rising to 34% and in France it can rise to 45% (the USA does not have a Federal Inheritance Tax – Only six states impose a tax on inherited assets). 

The first form of Inheritance Tax in the UK was introduced in 1694 to help finance the UK’s involvement in the War of the League of Augsburg and like most taxes once introduced it was never repealed. However, it wasn’t until 1919 that the duty payable rose to 40% and then only on estates valued over £2,000,000 (circa £35,500,000 in today’s money), so only for the truly wealthy. And, I guess that this is the problem we have today. Our current Inheritance Tax regime catches too many people who just happen to live in an area with high property prices. I also understand the argument about unearned wealth but Inheritance Tax today raises circa £7.2bn or roughly 0.3% of national income. To put this in context the UK Government spent £111bn servicing debt in 2022/2023. Those with significant wealth and resources generally manage their affairs in such a way that they pay little or no tax at all.

Income Tax wish list 

Raise Income Tax Thresholds

The tax burden in the UK is reported to be at the highest for 70 years. The current rate at which workers pay 40% income tax is £50,271 and it is expected to remain so until 2028 taking more workers into the 40% tax bracket. Raising this rate will put more money into the pockets of middle earners. Alternatively, reducing the basic rate of income tax by just 1% is likely to result in a saving of circa £377 each year for most workers who pay income tax. Rishi Sunak promised to do this by 2024 when he was Chancellor, doubling down on this in his bid to become Conservative leader (and Prime Minister) by promising to reduce basic rate income tax to 16% by the end of the decade.    

And finally, Corporation Tax wish list

Reduce UK Corporation Tax (by any amount)

I understand that the Chancellor will have a difficult time balancing the books following the cost of COVID and in particular the furlough scheme and other business support grants. There are now calls from both sides of the House of Commons for a “growth strategy” and many believe that reducing the rate of UK corporation tax (currently 25%) would be an effective part of such a strategy. There are arguments for and against lower corporation tax and essentially it will come down to whether the Chancellor can balance the books given the increasing pressure on the NHS, State Pension increases and benefit payments (to name just a few). However on balance it would be good to see the rate of Corporation Tax reduced. It will make the UK attractive to foreign multinationals. How ironic would it be if the Chancellor reduced it to 19% the level proposed by Liz Truss and Kwasi Kwartang!

Conclusion

I’m not certain what the Chancellor will announce on Wednesday, no-one is. He might have a rabbit to pull out of the hat as he did when he abolished the pensions lifetime allowance or it might be a very delicately balanced statement where nothing much changes. But our hope is that he can do something to boost the UK economy both in the short, medium and longer term.

Please note

This guide is for information purposes and does not constitute financial advice, which should be based on your individual circumstances. The value of investments may go down as well as up and you may get back less than you invest. The favourable tax treatment of ISAs may be subject to changes in legislation in the future. Levels and bases of, and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.