So Jeremy Hunt delivers his first Budget and the tone is very much Lib/Dem, with huge increases in welfare spending, NHS, Education etc. One new nuclear power station will be given the green light, which will barely make a dent in electricity demand in ten years’ time. Until then people will be encouraged to ration their energy usage and this winter sees extra payments of up to £900 being made to those on benefits and pension credit.
HS2 will continue. More Defence spending, which given the ongoing proxy war in Ukraine, seems inevitable. More migration with 200K “skilled” workers per year being the target.
What is the news for the insurance/broker/business sector though? Mixed bag. Solvency rules veering away from the EU position is welcomed by most big insurers and gives London an edge in some investment areas.
Business Rates are being cut slightly, which is good. But on the downside start-up Directors will gradually lose what is left of the vital tax free dividend allowance of 2K. It’s being phased out forever and this really does hit the poorest self employed and small scale companies hard – for C Suite Directors it makes no difference, they can employ accountants to minimise their tax position.
The Capital gains threshold is also being gradually phased out, so if you build up a biz and sell it, then yep, you lose a big chunk in tax. Then you pay tax on the residue too, as it’s all income in that tax year. Unless we have missed some entrepreneur relief scheme, it all seems like a huge deterrent to anyone thinking of investing their savings in a new business since the risk carries zero reward. Maybe that’s the aim, keep the lower orders in their place?
Here’s some reaction for you;
ABI ON SOLVENCY RULES
Hannah Gurga, ABI Director General, said:
“We strongly welcome these changes to the Solvency II regime which will allow the UK insurance and long-term savings sector to play an even greater role in supporting the levelling up agenda and the transition to Net Zero.
“Meaningful reform of the rules creates the potential for the industry to invest over £100bn in the next ten years in productive finance, such as UK social infrastructure and green energy supply, whilst ensuring very high levels of protection for policyholders remain in place.
“More broadly, it will encourage a thriving and competitive industry which will ultimately benefit the UK economy, the environment and customers. This meets the objectives that HM Treasury set out to achieve and which the industry has supported throughout.”
The general mood music is that the capital previously held by Life insurers under Solvency II will be freed up, mainly to pump into ESG/climate and social housing projects. Whether these investments actually deliver a real income to those investing their pension payments or Life premiums, is a moot point, since the housing built now, or the green tech developed now, might not be compliant – or even profitable – in 30-50 years’ time.
Half a century ago it made sense to invest in plastics, oil, copper wire comms infrastructure, margarine factories, petrol cars or slab-sided concrete flats and shopping precincts. There is no reason to suppose that the fund managers of today are any more prescient than their grandparents were back in 1972.
Barry O’Dwyer, ABI President and Royal London Group CEO, said on Solvency:
“We all want to see an insurance sector that maintains the highest standards of policyholder protection and also contributes significant investment into UK assets and infrastructure that will benefit our customers, the environment and wider society. This has always been our goal and with these proposed reforms, we can achieve that ambition. The industry will continue to work closely with the Government, the Prudential Regulation Authority and other stakeholders as we move towards implementing the changes.”
Faye Church, chartered financial planner, Investec Wealth & Investment (wealth manager):
“If you are a basic rate tax payer, any increases in pay could push you into higher rate. This, along with a double whammy of high inflation and higher taxes could mean a potential pay cut rather than a pay rise. This may also affect those on state pension – the triple lock will push many people into basic rate tax, eroding any inflationary increase because the £12,570 personal allowance has been frozen.”
“Businesses and entrepreneurs will also be affected, as Corporation Tax is still set to increase to 25%. This coupled with high inflation and a freeze to the VAT threshold until 2028 will be seen as little support to enable growth and stability for small and medium sized businesses in these challenging times.”
CBI RESPONDS TO CHANCELLOR’S AUTUMN STATEMENT
Rain Newton-Smith, CBI Chief Economist, said:
“The test for the Autumn Statement was to deliver stability at the same time as unveiling a clear plan for growth. The Chancellor deserves credit for delivering stability, as well as protecting the most vulnerable, but businesses will think there’s more to be done on growth. Backing the CBI’s call for a freeze in business rates and smoothing the increase for those facing higher bills is very welcome.
“Staying the course on R&D spending and major infrastructure, including Sizewell C, HS2 and Northern Powerhouse Rail will give a major boost to communities and the country. Similarly, a renewed energy efficiency drive will take us closer to our goal of a low carbon, energy secure future.
“But stabilising public finances inevitably means difficult decisions have to be taken. Businesses will view a freeze in NICs thresholds and further windfall taxes as the sharpest stings in the tail. Firms will also need more detail on what happens with the business energy support scheme in the coming weeks. The Autumn Statement lays down an important marker for the direction of the country. Business will work with government to turn today’s ambitions into a serious plan for growth that can lift us all out of the current crisis.”
On the new National Living Wage rate, Jake Shepherd, Senior Researcher at SMF said:
“In meeting the Low Pay Commission’s recommendations to raise the National Living Wage, the Chancellor has provided a much-needed boost for low-paid workers. The increase will give millions of households additional spending power and help them to absorb living costs – it is an announcement many will be grateful for.
“But the 9.7% uprating is still not in line with inflation. For many workers, the new rate will not be enough to meet the cost of living. Equally, businesses continue to stare down the barrel of growing overhead pressures. For some, particularly smaller films, it will be a tough challenge to rise to the new requirements. Some may even feel the need to pass on their wage bills to the consumer.”
Alex Davies, CEO and Founder Wealth Club said: “Freezing the inheritance tax threshold for yet another two years – until April 2028 – is another kick in the teeth for those wanting to pass down their wealth to loved ones. We believe that this extended freeze combined with rampant inflation will increase average IHT bills to £297,793 in 2025/26 and to £336,605 in 2027/28.
Contrary to what many think, inheritance tax doesn’t just affect the super-rich. It will be the thousands of hardworking families to bear the brunt, as they get caught in the cross hairs of high property prices and frozen IHT allowances.
Figures out just last month show that HMRC raked in another £3.5 billion in inheritance tax receipts in the six months to September 2022. This is £400 million more than in the same period last year and continues the upward trend. The good news is that with some careful planning there are lots of perfectly legitimate ways you can eliminate or keep IHT bills to the minimum, so more of your wealth is passed on to your loved ones rather than being syphoned off by the taxman.”
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