Chancellor Phillip Hammond issued his first Autumn Statement on Wednesday 23rd November, having taken over the role from George Osborne following the June referendum result.
The overall theme was “business as usual” with little substantive change to any of his predecessor’s initiatives. Here is a summary of the relatively few new measures that will affect savers and investors. To discuss any of these in more detail, please contact your Investment Manager.
No more Autumn Statements
In recognition of the flurry of changes that accompanied announcements delivered by George Osborne, Hammond appears keen to steady the ship and make fewer dramatic moves as the government and investors both focus on weathering what could still be a complex and protracted Brexit process. As such he announced that his first Autumn Statement would also be his last as the Treasury adopts an annual Autumn Budget, supported by a Spring Statement.
Pensions – a mixed bag
By way of what some commentators have called “an easy win” Hammond announced the launch of a consultation on pension fraud and a ban on cold calling. Given the recent proliferation of pension scams this is a welcome move and not before time. In other news…
Higher rate relief – here to stay?
Much to the relief of higher rate taxpayers, there was no direct hint in this Statement that the government plans to reduce or abolish higher rate tax relief on pension contributions despite the obvious temptation it presents to an indebted government that gave away £48bn of relief in 2014-15. However, despite reassurances that the Treasury has “no plans” to scrap this relief, Investors would be wise to make the most of it while it remains intact as speculation that it could one-day be targeted has been rife for years now.
A sting in the tail for pension savers
There was nonetheless a sting in the tail of this Statement for anyone planning to rely on contributing to a personal pension even as they draw down money from it. They will see the maximum amount that can be invested this way, via the Money Purchase Annual Allowance, reduce from £10,000 per year to just £4,000 from April 2017. The move drew an immediate reaction from ex-Pensions Minister Steve Webb who commented that it “flies in the face of efforts to make retirement more flexible”. This is an area that needs careful review by anyone planning to start drawing benefits from a personal pension in the near future.
“Triple Lock” lock-down
The Chancellor also confirmed that the so-called State Pension Triple Lock – whereby the State Pension is increased annually by the higher of annual wage inflation, the RPI or 2.5% – would be maintained for the rest of this parliament, after which it would be under review. The estimated additional cost of this commitment in 2016, versus a simper earnings link, is estimated at £4.5bn so it would be unsurprising to see it overhauled after the next election.
A few crumbs for savers
The Chancellor has committed to an increase in the personal allowance (currently £11,000 per year) to £12,500 by 2020. It will rise to £11,500 from next April. He also announced that a new three-year NS&I Investment Bond would be available from next April paying an expected 2.2% AER on a maximum £3,000 investment over three years.
Infrastructure investment gets a boost
Investors hoping for a Trump-style spending splurge on infrastructure will have cheered Hammond’s headline-grabbing £23bn Infrastructure Fund. Highlights include:
The amount spent on “economic infrastructure” will rise from its current low level of 0.8% of GDP to 1.2% between 2020 and 2050.
A £1bn investment in digital infrastructure, alongside a pledge that the UK will become a world leader in 5G, is a boon to the technology sector
A commitment to set up a £2.3bn housing infrastructure fund is also welcome alongside £1.4bn for affordable housing although, even taken alongside Osborne’s existing £3bn pledge, these measures will in no way solve the UK’s overall housing shortfall
For further information about the best ways to play rising infrastructure spending here and overseas, please request a copy of our recent Research Note from your Investment Manager.