As we approach the festive season, the country is not quite ready to celebrate yet. The top financial news story this month was the Autumn Statement, which introduced some of the most significant tax rises seen in recent years.
The weather turning colder means that energy prices are now even more of a concern, coupled with the prospective tax increases.
The Autumn Statement
The new chancellor had already backed out of most of the proposals introduced in the September mini-budget. The Autumn Statement went on to bring in further measures, with tax increases and curbs on public spending at the forefront.
The main points to note are:
- The threshold for the 45% tax rate is reducing from £150,000 to £125,140 (applicable to individuals in England, Wales and Northern Ireland).
- The tax-free dividend allowance will be cut from £2,000 to £1,000 in April 2023, and to £500 in April 2024.
- The capital gains exemption will drop from from £12,300 to £6,000 in April 2023, and to £3,000 in April 2024. The trustee rate will remain at half of the main rate and will be cut accordingly.
- The stamp duty threshold will remain at £250,000, having recently increased from £125,000. However, this will be temporary, and will revert back to normal from 2025.
- Thresholds for income tax and inheritance tax, already set to be frozen until 2026, will now be unchanged until at least 2028. This means most people will pay more tax in real terms.
- The energy price cap will increase to £3,000 for 12 months as of April 2023.
- State pensions and benefits will increase in line with inflation. The State Pension triple lock is maintained, however there will shortly be a consultation on the State Pension age.Some disability benefits are devolved in Scotland, so it is for the Scottish Government (SG) to decide uprating. Department for Work and Pensions (DWP) benefits are fully devolved in Northern Ireland, so it is for the Northern Ireland Executive to decide uprating in Northern Ireland.
- Public spending will continue to rise, but at a lower rate than previously indicated. This is likely to result in real-terms cutbacks.
The Property Market
As we are now in the midst of a recession, the stamp duty threshold increase (resulting in a saving for most buyers) was introduced to support the property market. Property values suffered significantly during the last recession, resulting in negative equity for many homeowners.
This recession comes with the added pressures of high inflation and rising interest rates. This makes it more difficult to save and borrow. Job insecurity is another potential concern.
With average mortgage interest rates now at their highest point since 2014, the Bank of England has confirmed that approval rates dropped by more than expected in October. Acceptances for new mortgages are now at their lowest levels since the height of the pandemic.
These factors do not bode well for the property market in 2023.
Keeping Your Money Safe
During times of financial uncertainty, scammers tend to take advantage of this vulnerability. According to Citizen’s Advice, more than three quarters of adults have been targeted by scams this year as a result of the cost of living crisis.
The basic principles of avoiding scams remain the same – ignore cold callers, do not give out your personal information to anyone you don’t know, and avoid submitting details through email links. However, as people become more savvy, scammers will become more creative.
But small scale criminal scams are not the only risk to your money. The regulations put in place following the last financial crisis have been partly revoked in a bid to improve post-Brexit growth. This means that for many banks, their retail operations (banking, saving, and lending) will no longer be ring-fenced separately from their investment operations. This could expose banking customers to the consequences of the bank’s investment decisions. The ring-fence will, however, remain in place for the largest banks, including NatWest, Barclays, HSBC, and Lloyds.
Remember, it was risky investment decisions in the banking sector which contributed to the global financial crisis in the first place. In an era when Elizabeth Holmes (sentenced this month to 11 years for her role in the Theranos fraud) can part investors from millions, and cryptocurrency exchanges are collapsing despite being backed by major names in the financial world, we should not assume that lessons have been learned.
The UK Market
The UK market has seen a reasonable bounce in November, with both the FTSE 100 and the All Companies sector returning over 7%. Both the market and the currency responded positively to the Autumn Statement.
Top performers this month included Devro plc, a Scottish sausage casing company which has recently been taken over by the Saria Group. Gambling company Rank Group and The Card Factory have also seen strong performance after a difficult few years.
The Global Outlook
The Asian and European markets also produced strong returns in the last month.
In the Eurozone, inflation has fallen after several months of spiralling prices. This has fuelled optimism in the market and could mean that interest rate rises aren’t as high as initially feared.
The Chinese economy is still under pressure due to their zero-Covid policy and the resulting protests. Interestingly, the protests appear to have boosted the stockmarket as investors feel this will result in an economic re-opening and boosted growth.
The US market has been lagging behind somewhat, although this may partly be down to some recovery in the value of the pound relative to the dollar. At the time of writing, the Fed are still undecided about the level of interest rate rises needed to cool the economy and reduce inflationary pressure. These decisions will have a global impact, both in terms of stockmarket valuations and currency rates.
Please don’t hesitate to contact a member of the team for more information on any of the topics covered.
The value of investments can fall as well as rise and is not guaranteed. Past performance is not a guide to future performance.
The content in this article was correct on 02/12/2022.
You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on savings, pensions, investments, mortgages, protection and estate planning for teachers and non-teachers. The Financial Conduct Authority does not regulate estate planning.
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