First official announcement from the new Chancellor

A £20 billion deficit in the UK economy has been identified and consequently, Rachel Reeves has outlined some initial changes, to ‘restore economic stability’ prior to the Autumn Statement which is due to take place in October.

We summarise the headline changes below.

Winter fuel payment

For those not in receipt of means tested benefits including pension credit, the winter fuel payment has been stopped. Labour have committed to continue the triple lock guarantee regarding the state pension to ensure it keeps pace with inflation but with income tax allowances remaining static, pensioners are feeling the impact of fiscal drag and paying more tax than ever.

Although, energy prices have come down, with the ongoing uncertainty around the geopolitical position between Russia and Ukraine, will we see another spike in energy prices over the coming winter putting pensioners under further economic strain?

Projects scrapped

Any infrastructure projects without appropriate funding have been scrapped after finding ‘unfunded transport projects’ totalling £1billion. Further discarded projects include, stopping the A levels reform, new hospital program and Reeves has confirmed there will not be any changes to adult care costs.

It is perceived there is either no funding set aside to facilitate these projects, or it is not feasible for the government to absorb further costs which is resulting in some tough choices for the new party.

Pay rises

To stop the strikes and continuing industrial action, Reeves has committed to the following public sector pay rises. 

• Teachers are set to receive 5.5% from 1 September 2024. 
• Junior doctors are set to receive 22.3% over the next two years which is inclusive of the recent rise. 
• Police officers set to receive 4.75% increase. 
• Armed forces set to receive 6% increase.

Across the board, public departments will need to cut their cloth with Reeves asking them to absorb £3 billion to help plug the shortfall.

The announcement appears to be a precursor for the upcoming Autumn Statement which could impact a range or areas including Pensions, Inheritance Tax, and Capital Gains Tax.

Looking forward, how could this impact the financial advice industry?

Providers are already struggling to keep pace with fluctuating legislation. This is increasing turnaround times; quality of service provided and can impact the outcomes for clients. While pensions are in drastic need of simplifying, the concern is how will providers cope with such a change when already strained?

Following the announcements and with the OBR investigating the Conservatives’ forecasts, it is unlikely the tax position will become more attractive. Any changes may result in structural alterations within financial plans to adapt them in line with changing legislation.

With taxes already being at a record high, the cost-of-living crisis making the public more cost/spend conscious and providers struggling to keep pace, this is naturally going to raise concerns. If the picture Reeves has painted is accurate, there needs to be some thought to stabilising the economy but also consideration to not increasing the ‘squeeze’ on households too much.

Change is not a bad thing, and in some instances, it can present opportunities which the financial planning process will identify. It is becoming apparent however, with increasing complexity and frequency of legislation changes, the need for financial advice is increasing.

If you are concerned about your financial future, do not hesitate to contact us today.

Please do read our article on Reflections on the General Election for more details.