Jeremy Hunt’s Autumn Statement has been branded as “lukewarm” and might not be enough to shift the political narrative for the Conservatives.
This was the Chancellor’s main opportunity outside of the Budget to make tax and spending announcements and, with Labour 20 points ahead in the polls, one of the last chances for the government to shift the narrative for the Conservatives ahead of the general election.
While some measures announced are clearly to be welcomed, the Statement as a whole was surprisingly lukewarm. Despite some positive headline grabbers, including a national insurance cut of 2%, plans for 12 investment zones and a ‘full expensing’ tax cut for businesses, it’s unlikely to significantly improve the financial situation of many households across Britain and, therefore, will do little to move the political needle for the government.
Below we take a look at some of the key issues that were on the table for investors.
Sale of government stake in NatWest
Giving retail investors a slice of ownership in NatWest is a welcome move given that they have been left out of previous sales, which have been reserved for institutional investors. This is a recurrent theme, retail investors are rarely offered the full suite of investing opportunities, so this would buck the trend.
Further sales would again bring NatWest closer to full public ownership and would bring to a close crisis actions taken during the Great Financial Crisis.
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The government announced at the Spring Budget that it intended to fully exit the shareholding by 2025-2026, subject to market conditions and achieving value for money for taxpayers. But shares are down by almost a third since January, with a sharp fall prompted in October by some disappointing third quarter figures.
Markets were expecting a dip in net interest margin as consumers moved from non/low interest-bearing accounts to higher rate longer-term products in search of better returns, but the pace of switching took markets by surprise.
“NatWest isn’t alone in facing this challenge,” observed Susannah Streeter, head of money and markets at Hargreaves Lansdown. “But as a more traditional bank, interest income is a big part of the pie.”
On a more positive note, provisions set aside for debt defaults were better than first thought and full-year guidance remains intact. At the current valuation the potential for returns, as some of present headwinds ease off, look attractive for both the business and existing and new shareholders.
VCTs: sunset clause
The announcement that the government is extending the VCT and EIS sunset clauses out to 2035 is good news for two schemes that have supported billions of pounds worth of investment into UK start-ups. It removes uncertainty that has been lingering over the sector for some time, potentially putting off new entrants and new investors, and secures a crucial source of funding for the UK’s blossoming start-up scene.
“It is a shame that the sunset clause hasn’t been abolished altogether – which would have avoided a repeat of the current uncertainty in a decade’s time – but with the Labour Party also voicing support or the schemes the extension is welcome nonetheless,” said Nicholas Hyett, an investment manager at the Wealth Club.
The dividend allowance will reduce again from £1,000 to £500 in April 2024. It’s an allowance that’s almost not worth having. An investment of £15,000 in the FTSE 100, yielding on average 3.5%, would breach this threshold.
It may be worth continuing to reassess whether dividends are the most effective way of receiving income, especially if you own your own business or have the flexibility to generate an income in other ways. Fixed income investments such as corporate bonds and gilts have definitely been a very attractive option whilst interest rates have been so high.
The roadmap for ISAs sets out a clear framework for updating and simplifying this much-loved savings and investment product. The announcement on creating a lifetime pension is a significant breakthrough, a look to the future which will simplify and improve how people save for retirement.
Savers and investors will be delighted the Chancellor has taken the opportunity to pay some much-needed attention to ISAs to help ensure this much-loved part of the furniture remains a firm fixture for the future. Allowing multiple ISAs of the same kind in a single tax year from April, and partial transfers of ISAs opened in the current year are seen as both sensible ways to inject much-needed flexibility and simplicity into the system.
For those using stocks and shares ISAs, it protects investors who accidentally open more than one ISA of the same type in a tax year. If you make a single regular payment into a stocks and shares ISA at the start of the tax year, and then try to invest in another stocks and shares ISA on the last day of the tax year, you’ll break the rules. The second ISA provider may end up refunding your money and you could miss a big chunk of your allowance for that year. This change would remove that risk.
There are also a number of smaller technical changes which will ease some of the frustrations of the system, including the fact that from April people will no longer need to reapply for an existing ISA.
The digitalisation of the reporting system should allow for real time reporting. It will help HMRC to track subscriptions more easily and open the door to allowing people to hold multiple ISAs of the same kind. It will also make it essential for people to keep their details up to date with HMRC to avoid any delays to applications. This process is already due for roll out to SIPPs and other personal pensions in April 2025.
Innovative Finance ISAs opened to open-ended property funds
The Treasury will open the Innovative Finance ISA to open ended property funds.
“We don’t think these are the way to invest in property because of liquidity concerns,” said Hargreaves Lansdown’s head of personal finance, Sarah Coles. “We think closed ended funds are a better way to get pooled exposure, and these are already available through an ISA.”
Coles said it’s disappointing that Jeremy Hunt didn’t take the opportunity to increase the overall ISA allowance. This was last changed way back in 2017, so would need to rise to more than £25,000 just to keep pace with inflation. This was a real opportunity to take the sting out of serious cuts to the dividend tax and capital gains tax allowances and protect savers from the horrors of income tax bills. It means many more savers and investors facing tax bills in the year to come.
The Lifetime ISA has been on and off the table for the Autumn Statement more times than a wine bottle at a book group. So, it’s disappointing that when we got to the Statement itself, Jeremy Hunt didn’t take the opportunity to make small tweaks to the LISA. It has already helped over 171,000 people onto the property ladder, and helped start saving and investing habits that will boost resilience for a lifetime, but it has the potential to do even more for homebuyers and retirees.
LTAFs offer sophisticated investment opportunities in areas like private equity, infrastructure and real estate. These have previously been hard to reach for modern workplace pensions and retail investors. Until now they couldn’t be held within an ISA because ISA assets need to have the ability to be sold within 30 days. The expansion of them within innovative finance ISAs opens this opportunity although most money is held in stocks & shares ISAs and the Chancellor missed the opportunity to open this up further to holdings in these ISAs.
The government has a double whammy aim – to not only open alternative revenue returns for investors but also to increase the flow of funding into new projects with an aim to revitalise the economy for the longer term. They could be appropriate for a small proportion of portfolios where the investment horizon is aligned to that of long-term asset fund, both to increase diversification in a portfolio, and to potentially increase growth from investments that are traditionally hard to access. However, these assets are potentially riskier, and the risks must be well flagged.
Hargreaves Lansdown said it expects groups of retail investors to also to be interested in investing in more long-term projects – particularly if they help to power the green Industrial Revolution. The key to this is to consider the retail investor’s requirements and perspectives, ensure value, well governed products which deliver good outcomes.
Investment costs disclosure
The investment trusts sector seemed positive about the government’s announcement that powers will be handed to the Financial Conduct Authority (FCA) to resolve the issues with investment company cost disclosures.
Richard Stone, Chief Executive of the Association of Investment Companies (AIC), said: “We applaud the government’s announcement that powers will be handed to the FCA to deal with the pressing issue of cost disclosures. The AIC, the industry and parliamentarians including Baroness Bowles and Baroness Altmann have lobbied hard against damaging and misleading cost disclosures which have prompted selling of investment companies by some investors.”
Stone said it is vital that the UK creates a level playing field for cost disclosure between investment companies and open-ended funds, and that it is good to see the intention to bring UCITS funds within the same regime. “The new regime must give investors the information they need to make informed decisions without any bias against investment companies and we look forward to working with the government on this,” he said.
The publication of the draft statutory instrument is being welcomed by the investment trusts industry as is the stated intention to bring a similar instrument forward on MiFID allowing the FCA to address all the relevant issues.
The AIC said it would be looking at the details of the draft legislation to ensure that the powers handed to the FCA are wide enough. “Action needs to be taken swiftly, and given the length of the legislative processes it is also encouraging to hear that the FCA is considering interim action to help mitigate the problems in the short term,” Stone said.