The Autumn Statement is due on 30 October 2024, and many are speculating on how its provisions could affect people’s taxes and welfare – especially those in retirement.
Regardless of one’s political affiliation, it is important to consider how a change in government and its policies may impact household finances, personal wealth and the wider economy.
Below, we explore how the 2024 Labour government might affect older people – especially pensioners. Our analysis draws upon the state of the economy, Labour’s decisions taken so far (since 5 July) and statements from cabinet ministers.
The state of the economy
You may remember the early days of Tony Blair’s New Labour government in 1997. His tenure as prime minister was marked by 200 years of steady, uninterrupted growth (the longest in 200 years). Debt dropped relative to GDP, and inflation was kept at low historic levels.
It is no secret that this Labour government has inherited a challenging UK economy. Although CPI inflation came down in 2024 under the previous Conservative administration, the national debt stood at nearly 100% of GDP when it was ousted in July.
In November 2023, living standards had deteriorated at a rate not seen since the 1950s. Interest rates are their highest since the 2008 Financial Crash, and the fiscal deficit (net borrowing) was £39.2 billion in Quarter 3 2023 (5.8% of GDP, which is widely seen as unsustainable).
Given these conditions, it is unsurprising that the 2024 Labour government must make difficult decisions to balance the books. This likely means a cut in spending, a rise in taxes or both. However, where might the axe fall?
Pensioners and the decisions so far
The new Chancellor, Rachel Reeves, delivered her first speech on 8 July. It is fair to say that pensioners did not come at the top of the list of government priorities.
The headline announcement was the abolition of the universal Winter Fuel Payment. Before, everyone over their State Pension age could claim the benefit to help with their energy bills in the colder months. Now, however, this would be means tested.
Simultaneously, public sector workers were handed an average 5-6% above-inflation pay rise (the same growth seen between April 2019 and April 2023). This followed and even exceeded the recommendations from organisations like the Independent Welsh Pay Review Body.
More positively, the Labour government has remained committed to the “triple lock” for the State Pension. The full new State Pension is now expected to rise by £400 in 2025 due to forecasted rises in average wage growth (partly due to the aforementioned public sector pay rise).
What could lie ahead?
Prime Minister Starmer confirmed in August that “painful” decisions would need to be taken in the Autumn Statement, due in October 2024. What might this mean for pensioners?
Of course, there is very little confirmed at this stage. Pundits and analysts can only speculate, and it is unwise to build a financial plan based on what “might happen”.
However, it would be prudent to speak with a financial adviser about how to best keep your options open if policy shifts in an unfavourable direction.
If we examine what Labour cabinet ministers have said so far, the emphasis on tax policy has been to protect “working people”. Specifically, the Party promised not to raise income tax, National Insurance (NI) and VAT.
With that said, Labour has also committed to retaining the income tax “freeze” set by the old Conservative government until April 2028. Under current projections, the full new State Pension could be subject to tax in the next two years (as it rises under the triple lock).
This suggests that the Government will likely need to change the triple lock within the next two years, alter the income tax thresholds or take another innovative approach to avoid an overly complex system.
More immediately, markets are speculating that the Autumn Statement could contain changes for pensions tax relief, capital gains tax (CGT) and inheritance tax (IHT). Chancellor Reeves has already confirmed that taxes will need to rise in October. Since the “working people taxes” have been ruled out, other wealth-related taxes are in the firing line.
Based on past experience, the Autumn Statement is likely to contain surprises. So, as stated, it is unwise to try and second-guess the tax landscape beforehand. Rather, consider getting help from a financial adviser to explore your options if you have questions about your pension(s).
If you would like any help with your financial planning, please do not hesitate to get in touch.
The value of investments can fall as well as rise and is not guaranteed.
The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.
The content in this article was correct on 18/10/2024.
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