Still taking on board some of the announcements coming out of the Autumn Budget and Spending Review? Are you wondering what the updates will mean to you and your family for the coming months and years?

Well, with this first Autumn Budget in three years, there is certainly some positive news. And although not completely post-pandemic, there were hints that the dramatic economic impact felt during the past 18 months might be, in some way, eased.

Unemployment has reduced to 2.5%, with over two million less registered unemployed than had been anticipated. And although expectations of an increase next year to 5.2%, this is still drastically below the earlier forecasts of 11.9%.

And then came The Office for Budget Responsibility (OBR) statement that inflation is likely to rise once again from the September figure of 3.1% to an average of 4% over the coming 12 months.

But it was clear that the Chancellor wanted to bring about some immediate benefit for households and businesses, along with the usual longer term focus, both in local and national investment.

Not only that though, but a clear message also came through the Autumn Budget that the UK economy is bouncing back quicker and more robustly from the Covid catastrophe than many of our global counterparts. To the extent that by 2022, it is expected to reach pre-pandemic levels.

Annual growth is on the up, bouncing back to 6.5% this year and further growth of 6% predicted during 2022. And with Government borrowing also likely to decrease significantly next year, from the current 7.9% to around 3.3% as a percentage of Gross Domestic Product (GDPR) it also looks to continue on the decline to around 1.5% over the coming years.

Mr Sunak’s rally to the troops included an emphatically positive statement, “… Growth up, jobs up, and debt down; let there be no doubt – our plan is working.” However, this came with the caveat that it “ … does not draw a line under Covid.”

Before looking in more detail within each sector, it is important to define the difference between the Budget and the Spending Review to get a clearer picture of how each impact the economy, and indeed why we need both.

What is the difference between the Autumn Budget and the Spending Review?

Quite simply, the Budget, which generally takes place once or twice a year, outlines the Government’s spending plan for the approaching months. It tends to focus specifically on taxes and duties.

The Spending Review looks at the longer-term financial focus, covering spending across all Government departments, as well as the plans to boost the economy overall. Hence, a Spending Review usually only takes place every three years, and details spending plans up to five years in advance.

So, what impact will the Autumn Budget and Spending Review have on households and homeowners?

Households and family

  • In line with recommendations from the Low Pay Commission, the Chancellor delivered a welcome update for lower earners around the National Living Wage rising from £8.91 per hour to £9.50 with effect from 1st April 2022. This equates to a 6.6% rise in minimum wage for all those aged 23 and over, more than twice the 3.1% increase in cost of living. The Chancellor stated he believes almost two million families will take on an extra £1,000 per year as a result.
  • As a follow up to the controversial £20 reduction in Universal Credit only weeks ago, the Autumn Budgetconfirmed an 8% reduction in the Universal Credit taper rate. To be introduced no later than 1st December, this will see the rate at which you lose benefits, for each £1 you earn above £515 per month, fall from 63p to 55p. Mr Sunak gave the example of a single mother of two, renting her property, and working full-time at National Living Wage rate, being £1200 per year better off.
  • Along with the national wage news, public sector workers will now see an end to their pay freeze.
  • The anticipated increase in fuel duty is not now being implemented, as we are experiencing the highest associated costs in eight years. This is believed to have saved £1900 per driver thanks to the 12th consecutive year of frozen rates.
  • A complete review of duty on alcohol in simple terms means that the higher the alcohol content, the higher the duty, with the anticipated increase in duty on wines, beer, spirits and cider now not going ahead. And many lower strength alcoholic beverages plus draught beers and cider will see a decrease in duty. So, by 2023 when these changes come in to being, you are likely to see your average pint of beer decrease by around 3p.
  • In a bid to revive the travel industry, specifically to aid the smaller, regional airports, a lower Air Passenger Duty (APD) will come into effect in April 2023 on UK internal flights. But, at the same time, the Autumn Budget also included a new APD of £91 for flights over 5,500 miles, with the ultimate ambition to assist in  the carbon footprint reduction.

Of course, these updates should be reviewed alongside the warning that the rise in inflation will create a tight squeeze for some households.

And for those with a serious interest in the environmental impact, perhaps creating more appeal for internal flights within the UK regions might not be the best planning. Not claiming to be an expert in this though, I will leave the outcome of that as ‘remains to be seen!’

Taxes and the Health and Social Care Levy

Aside from the difficulties in obtaining the usual array of household supplies causing price rises, and standard cost of living increases, from April 2022 in addition to National Insurance Contributions, a 1.25% levy will be implemented across all self-employed workers (Class 4) and working-age employees (Class 1) as a contribution to NHS funds.

The Health and Social Care Levy will be separated from NICs, and will also apply to those who continue working beyond State Pension age.   

Inheritance Tax and the Pension Lifetime Allowance both remain static. For more detailed information on these and how this update could impact your financial portfolio, please contact Simpson Financial Services and speak to one of our team of Independent Financial Advisors and sector specialists.

Capital Gains Tax – with immediate effect, the deadline for reporting and payment of CGT after the sale of UK residential properties moves from 30 to 60 days post-completion (60 days applies only on the residential element of the gain where a mixed-use property is sold).

Prior to the Autumn Budget, the Chancellor had previously announced that the annual exemption of £12,300 on CGT will remain frozen until 2026. Tax due for basic-rate taxpayers will continue to pay 10% on Capital Gains, and 20% for those on the higher-rate.

The main ISA contribution was frozen at the 2017 level of £20,000.

Annual Investment Allowance – the temporary AIA of £1million is now extended until end March 2023, to encourage further investment. It is unknown as yet as to whether this will be reduced back to the previous £200,000 from then.

Dividend Income – from April 2022, income tax payable on dividend income will increase by 1.25%, with the £2000 tax-free allowance remaining the same.

And finally, do you need further guidance on the specific impact of the Autumn Budget and Spending Review?

With our team of financial experts, general and sector specialists, we appreciate how much information the Autumn Budget has highlighted. And it can be a headache to calculate what the updates will do for your individual circumstances.

With this in mind, we would love to offer you the opportunity to contact our team here at Simpson Financial Services for some friendly advice and financial guidance.

You need not be concerned with the detail around the Autumn Budget, as we will ease you through your tax and financial planning to ensure you and your loved ones get the best out of your savings and investments, pension plans, mortgage products, and estate planning.