Economic Insights

Autumn Budget 2024: Key Points

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The Chancellor of the Exchequer, Rachel Reeves, delivered her maiden Autumn Budget Statement 2024 on Wednesday 30 October, alongside an updated economic forecast from the Office for Budget Responsibility. Three months after coming to power, she set out the government’s taxing, borrowing and spending plans.

Main announcements from Chancellor Rachel Reeves at a glance

Key measures on tax, investments, pensions and property

What does the Autumn Budget Statement 2024 mean for your money? Chancellor Rachel Reeves delivered Labour’s first Budget since 2010 on 30 October, after the party’s return to power in July’s general election.

She announced tax rises worth £40bn, commenting that these would rebuild public services and stabilise the public finances.

ECONOMY

  • Office for Budget Responsibility predicts the UK economy will grow by 1.1% this year, 2% next year and 1.8% in 2026
  • Inflation is predicted to average 2.5% this year and 2.6% next year before falling to 2.3% in 2026
  • The official definition of UK government debt loosened by including a wider range of financial assets, such as future student loan repayment

PERSONAL TAXATION

  • Rates of Income Tax and National Insurance (NI) paid by employees, and of VAT, to remain unchanged
  • Income Tax band thresholds to rise in line with inflation after 2028, preventing more people being dragged into higher bands as wages rise
  • Basic rate Capital Gains Tax on profits from selling shares to increase from 10% to 18%, with the higher rate rising from 20% to 24%
  • Rates on profits from selling additional property unchanged
  • Inheritance Tax threshold freeze extended by further two years to 2030, with inherited pension pots also subject to the tax from 2027

WAGES, BENEFITS AND PENSIONS

  • Legal minimum wage for over-21s to rise from £11.44 to £12.21 per hour from April
  • Rate for 18 to 20-year-olds to go up from £8.60 to £10, as part of a long-term plan to move towards a ‘single adult rate’
  • Basic and new State Pension payments to go up by 4.1% next year due to the ‘triple lock’, more than working age benefits
  • Eligibility widened for the allowance paid to full-time carers, by increasing the maximum earnings threshold from £151 to £195 a week

HOUSING

  • Social housing providers to be allowed to increase rents above inflation under multiyear settlement, external
  • Stamp duty surcharge, paid on second home purchases in England and Northern Ireland, to go up from 3% to 5%
  • Current affordable homes budget, which runs until 2026, boosted by £500m

TRANSPORT

  • 5p cut in fuel duty on petrol and diesel brought in by the Conservatives, due to end in April 2025, kept for another year
  • £2 cap on single bus fares in England to rise to £3 from January
  • Commitment to fund tunnelling work to take HS2 high-speed rail line to Euston station in central London
  • Commitment to deliver upgrade to trans-Pennine rail line between York and Manchester, running via Leeds and
    Huddersfield
  • Air Passenger Duty on flights by private jet to go up by 50%
  • Extra £500m next year to repair potholes in England
  • Vehicle Excise Duty paid by owners of all but the most efficient new petrol cars to double in their first year, to encourage shift to electric vehicles

BUSINESS TAXES

  • Companies to pay NI at 15% on salaries above £5,000 from April, up from 13.8% on salaries above £9,100, raising an additional £25bn a year
  • Employment Allowance – which allows smaller companies to reduce their NI liability – to increase from £5,000 to £10,500
  • Tax paid by private equity managers on share of profits from successful deals to rise from up to 28% to up to 32% from April
  • Main rate of Corporation Tax, paid by businesses on taxable profits over £250,000, to stay at 25% until next election

GOVERNMENT SPENDING AND PUBLIC SERVICES

  • Extra £22.6bn for day-to-day spending on the NHS in England, and a £3.1bn boost to budget for investment
  • £6.7bn allocated for education investment next year, with £1.4bn earmarked for rebuilding over 500 schools
  • Defence spending to rise by £2.9bn next year

OTHER MEASURES

  • £11.8bn allocated to compensate victims of the infected blood scandal, with £1.8bn set aside for wrongly prosecuted Post Office sub-postmasters
  • Government to stop receiving surplus cash from pension scheme for mineworkers
  • Extra spending in England will lead to £3.4bn more for Scotland, £1.7bn more for Wales and £1.5bn more for Northern Ireland in devolution payments

Do you need a Post Budget Financial Health check?

Book a chat with one of our expert financial advisers to see how they can help and support your financial planning through the new legislation

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Autumn Budget Statement 2024

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Chancellor Rachel Reeves delivered Labour’s first Budget since 2010 on 30 October, after the party’s return to power in July’s general election.

She announced tax rises worth £40bn, commenting that these would rebuild public services and stabilise the public finances.

Download our Guide to Autumn Statement 2024 for an in-depth look at what the budget could mean for your money: https://www.ellisbates.com/brochures-and-guides/

Autumn Budget 2024: Inheritance Tax

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Departure from previous rules where pensions were excluded from calculations

In a significant shift announced by Chancellor Rachel Reeves, inherited pensions will become subject to Inheritance Tax (IHT) from April 2027.

This marks a departure from previous rules where pensions were excluded from IHT calculations. Currently, pensions are usually passed on tax-free if you die under the age of 75 – or taxed at the beneficiaries’ marginal rate of Income Tax if you die over 75 – but in most cases, pensions don’t attract IHT.

This announcement is expected to impact roughly 8% of estates annually, as those who have heavily saved in pensions to lower their IHT liabilities may now face new tax burdens.

Additionally, the IHT tax-free threshold remains frozen at £325,000 (your property, money and possessions) until 2030. If your assets include the family home that you’re giving away to children or grandchildren, you also receive up to a £175,000 residence nil rate band.

As property and asset values rise, more estates will likely fall above this threshold, incurring IHT at the standard 40% rate.

Chancellor Reeves emphasised that these adjustments aim to make the IHT system fairer, ensuring wealthier estates contribute more to public finances.

Also, starting April 2026, reductions in agricultural and business property relief will be introduced. The first £1 million of such assets will remain tax-free, with a 20% IHT levied beyond that, including on Aim shares.

Retirees may need to reassess their long term financial plans, as defined contribution pension funds could attract up to 40% IHT.

Despite these changes, no adjustments to existing gifting rules were announced.

Do you need a post budget financial health check?

Step 1 – download our free post budget Guide to see the extent of the changes announced: Download here

Step 2 – book a chat with one of our expert financial advisers to see how they can help and support your financial planning through the new legislation

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2024 Election Guide

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Prime Minister Rishi Sunak has announced that the next general election will take place on Thursday, July 4.

This announcement ends months of speculation about the election date.

We have produced a 2024 Election Guide covering the key areas for you to consider with any potential changes in Government policy

To download your free guide please fill out your details below:

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EB Retirement Income Strategies (EBRIS)

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EB Retirement Income Strategies (EBRIS)

In 2023, in response to client demand, we developed our EB Retirement Income Strategies (EBRIS). EBRIS is a combination of our Income and Growth portfolios:

Income Portfolios Growth Portfolios

Every fund focuses on a yield return.

A ‘slow and steady’ approach, usually with lower volatility.

Often more mature businesses than high growth options.

Return some profits immediately through dividends.

Mix of near- and long-term rewards with income and some capital growth.

 More focus on capital appreciation in 5-10 years or more.

Businesses that can grow quicker by retaining profits.

Less emphasis on near-term rewards than long-term potential.

Will naturally hold more volatile investments.

No constraint on mandate of funds, other than overall return of the portfolio.

Returns can come from anywhere.

Our default EBRIS approach is an equal (i.e. 50/50) split between the Income and Growth portfolios. Depending on your individual circumstances and preferences, together we can personalise elements of the strategy – for example:

  • A greater allocation to one portfolio (e.g. Income or Growth) over the other.
  • Replacing the Growth allocation with our Socially Responsible Investing (SRI), Passive or Multi-Asset portfolio.
  • Investing in EBRIS alongside one of our Product Panel solutions.

Why the Standardised Approach?

Research shows that many individuals have not saved sufficiently for their retirement, so they are becoming increasingly reliant on stock market returns to maintain their lifestyle after they finish working. However, volatility in the markets post-COVID has raised concern over expectations of market returns in the years ahead. This leaves investors vulnerable to market shocks.

In these conditions, single solutions can present a heightened risk to investors, due to the possibility of a single solution focusing on a particular investment style.

EBRIS allocates investments across different asset Investment, investment styles, geographic regions, industries/sectors, fund houses and individual companies, among other categories, which helps to mitigate risk. At the same time, we believe that the combination of Income and Growth assets will give a higher probability of meeting your income requirements over the course of retirement, and avoid running out of savings (based on a 4% income requirement).

That said, there will be clear situations where a different mix of strategies, or even a single strategy, will be appropriate for you because of your unique circumstances. If you want to find out more about what would be the best solution for you, then please get in touch with your Financial Advisor.

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Ethical Investing

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By Kim Holding, Portfolio Manager

The world of ethical, responsible and sustainable investing is very fast moving and becoming increasingly complex. Not a day seems to go by without a new regulation or piece of legislation being proposed or enacted, to further promote sustainable practices, and hold businesses accountable for their impact on the environment and society.

How, then, can investors successfully navigate the landscape, and make sense of the information overload?

At Ellis Bates, our Investment Team has been managing Socially Responsible Investing (SRI) portfolios since 2008, demonstrating our deep roots in this area. To keep up to date with developments and filter out funds most worthy of our clients’ investment and trust, our investment process has naturally evolved over the years, more recently with the development of our SRI Framework. This Framework is a highly detailed tool that allows us to carry out an in-depth analysis on many factors including a fund’s alignment with the latest standards, investment philosophy, experience of the management team and engagement policies, to ensure the fund really is as ‘good’ as it says it is. As a living, breathing document, the Framework has undergone many developments and refinements since its implementation, and further revisions will be necessary as the landscape continues to evolve.

Utilising our Framework has allowed us to pinpoint several funds requiring further assessment. The most effective approach to clarify this information is to engage in discussions with the management teams – our well-established relationships with these teams significantly improves our access to valuable insights, enables constructive dialogues, and keeps us informed about their strategies and decision-making processes.

By way of illustration: this summer, our Framework brought attention to a fund in our SRI portfolios that exhibited notable exposure to UK water companies. Investors are no doubt aware that these companies have faced scrutiny in recent months due to their involvement in polluting rivers with sewage, and we recognise that addressing such negative environmental impacts is of utmost importance.

From our interactions with the fund’s management team, we established their beliefs and perspectives: a combination of events including outdated infrastructure (much of which dates to the Victorian era) and population growth (thus putting increased demand on this infrastructure) have contributed to these events. This can raise questions among observers as to why infrastructure dates back several decades, when investment in the industry has doubled since privatisation in 1989[1].

One area of criticism is that directors have allowed larger pay-outs to investors than on infrastructure investment. In economics, capitalism and socialism are opposing schools of thought: when capitalism is left unchecked, this can lead to inequalities and social injustices stemming from firms’ pursuit of profit. On the other hand, an anti-profit culture can result in a lack of dynamism in an economy, while failure by directors to make investor payments could violate their legal obligations under the Companies Act (which says, among other things, that they must act in shareholders’ best interests).

When capitalism or socialism is taken to an extreme, from an economic perspective, it can become necessary to restore balance. Indeed, water companies, regulators and government are responding positively to feedback from the Industry and Regulators Committee[2] who, following an investigation, have recommended measures to tackle these concerns. One example is providing new powers to regulator Ofwat, to closely monitor investment by the industry, and to hold firms to account[3].

Meanwhile, the fund’s management team is engaging with water companies to issue ‘use of proceeds’ blue bonds, where money raised is dedicated to specific projects such as upgrading infrastructure. The team – and we – continue to monitor the situation regarding pollution, while holding what they consider to be the most impactful names within the water sector, all of which should improve water security, and deliver better environmental and social outcomes.

We are reassured by the amount of time and research that the team has clearly dedicated to understanding this issue. Further, they have experience of engaging with companies on Environmental, Social and Governance (ESG) matters, thus fostering positive change and promoting sustainability.

Is it time to build a more ethical portfolio?

As awareness and interest in ESG factors continue to grow, the trend towards responsible investing will only strengthen. Starting a portfolio and filling it with environmentally, socially and governance-minded investments doesn’t need to be difficult. To find out more, please speak to us today.

Sources
[1] Ofwat, March 2022. Investment in the water industry. Retrieved from https://www.ofwat.gov.uk/investment-in-the-water-industry/ (Accessed: August 2023)[2] UK Parliament, March 2023. Failures of regulators, water companies and Government leaving public and environment in the mire. Retrieved from https://committees.parliament.uk/committee/517/industry-and-regulators-committee/news/194330/failures-of-regulators-water-companies-and-government-leaving-public-and-environment-in-the-mire/ (Accessed: August 2023)
[3] GOV.UK, March 2023. Government supports new Ofwat powers to tackle water company dividends. Retrieved from https://www.gov.uk/government/news/government-supports-new-ofwat-powers-to-tackle-water-company-dividends (Accessed: August 2023)

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Consumer Duty: Principle 12

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The Consumer Duty legislation has been put in place to focus on ensuring fair value, providing products and services designed to meet client needs, delivering high levels of client service and improving consumer confidence and client understanding.

Client Principle

  • A firm must act to deliver good outcomes for clients

Cross-cutting rules

  • Firms must act in good faith
  • Firms must avoid foreseeable harm
  • Firms must enable and support clients to pursue their financial objectives

Four outcomes

  • Products and services
  • Price and value
  • Client understanding
  • Client support

For more information on the legislative backdrop to the new regulations, watch our consumer duty video by Director of Financial Planning, Ben Clapham.

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What is Consumer Duty?

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Director of Financial Planning, Ben Clapham, explains the legislative backdrop to the new consumer duty regulations that were introduced by the Financial Conduct Authority (FCA) in August 2023.

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Consumer Duty and What it Means For You

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by Ben Clapham, Director of Financial Planning

The Consumer Duty is a package of measures introduced by the Financial Conduct Authority (FCA) and comprises of a new Consumer Principle (Principle 12) that provides a high-level expectation of conduct and associated outcomes and a definitive set of overarching cross-cutting rules which develop and amplify the standards of conduct the FCA expects under the Consumer Principle.

Consumer Principle

States that a company must act to deliver good outcomes for all retail clients.

Cross-cutting rules

The cross-cutting rules strengthen the standards of conduct the FCA expect under the Consumer Principle. They develop the FCA’s overarching objectives for firm behaviour through three common themes applying across all areas of a firm’s conduct. They are also intended to inform and help firms interpret the four outcomes. The cross-cutting rules require firms to:

  1. Act in good faith toward retail customers
  2. Avoid foreseeable harm to retail customers
  3. Enable and support retail customers to pursue their financial objectives

The four outcomes

The four outcomes represent the key elements of the firm-client relationship, with the behaviour and actions of firms in relation to each of these outcomes being instrumental in enabling clients to meet their financial needs and improve their financial wellbeing.

  1. Products and services
  2. Price and value
  3. Consumer understanding
  4. Consumer support

The FCA have placed an expectation that all firms within the financial services sector will:

  • Review their current approaches to bring them in line with the Consumer Duty requirements
  • Ensure they can evidence outcomes
  • Make sure any outcomes are reviewed and monitored on an ongoing basis
  • Ensure any issues identified are remedied or mitigated

For the full regulation see https://www.fca.org.uk/firms/consumer-duty

Our Mission

At Ellis Bates our mission is to enhance people’s lives by delivering peace of mind, enabling financial freedom and helping clients achieve their financial goals. We take great pride in leading the way in having these four key outcomes already well and truly embedded in how we look after our clients, both old and new,  and continue to work relentlessly on our client experience and outcomes.

Over the last 12 months in the build up to the introduction of the legislation, we have worked closely with the FCA at each stage to deliver each of the firm expectations above. Our teams have collaborated to check and re-check our existing systems and used the new legislation as an opportunity to think even more holistically on how we can improve our client journey and experience still further.

I am very proud of the enthusiasm and energy our teams have shown in embracing Consumer Duty, both as a platform to showcase the good outcomes we consistently deliver, and in challenging ourselves to go further to achieve the exceptional outcomes our clients readily feedback through the Vouchedfor platform www.vouchedfor.co.uk/firm/1250-ellis-bates-financial-advisers

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Spring Budget Pensions

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2023 Spring Budget on Pensions

Jeremy Hunt delivered his first budget as Chancellor of the Exchequer on 15th March and announced the following changes to pension legislation. 

Pension Lifetime Allowance

The Lifetime Allowance charge will be removed from April 2023 before it is abolished entirely from April 2024.

Pension Annual Allowance

The Annual Allowance will be raised to £60,000.

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