IN FOCUS6-8 min read

Behind the Statement: six insights for wealth clients from house prices to inheritance tax

Schroders’ experts look at the stats behind some of the Chancellor’s many policy announcements to shed light on what they mean for household finances, investors and their advisers.

2023/11/23
Photo of Whitehall in London

Authors

Duncan Lamont, CFA
Head of Strategic Research

The headlines captured the key measures (National Insurance deductions down, state pension payments up) but what about some of the knock-on effects of chancellor Jeremy Hunt’s long list of policy measures?

Schroders’ investment experts and analysts have looked beyond the headlines at the numbers behind some of the policies. Here’s a round-up of insights that you probably won’t have come across in the newspapers.

1.How bad is the UK’s profitability squeeze?

A key measure announced in the Statement for businesses is that “full-expensing” of investment in plant, machinery and IT equipment has been made permanent. This allows companies to claim back 100% of the investment against corporation tax and had been a temporary measure due to expire in 2026. Making it permanent should support companies in their longer-term planning.

The news is welcome for UK corporates who are facing a squeeze on profitability. Behind the headlines, Schroders research shows that UK corporate profitability is forecast to fall to its lowest level in more than 40 years.

Chart shoiwng UK corporate profitability under pressure

2.Some UK equity sectors may benefit more than others

Sue Noffke, Schroders’ Head of UK Equities, said: “This is an Autumn Statement for the masses. The cuts to NI are helpful for sectors such as retail and leisure.

“Making permanent the super deduction for business investment should benefit longer term spending on infrastructure projects by utilities companies in the power, water and telecoms sectors, as well as providing confidence and incentives for businesses to invest for productivity gains.

“The maintenance of the triple lock for pensions means companies exposed to the “grey pound” are reasonably well-placed.

“There is, however, a risk that this could be inflationary, which would likely prove negative for shares. But overall, we are pleased to see the overarching focus on business investment and tax reform.”

3. Solving the UK housing problem…?

The chancellor offered little to ease the difficulties facing would-be homebuyers, but as a result of the Statement the Mortgage Guarantee Scheme (which helps lenders of mortgages worth 95% of the property’s value) was quietly extended by 18 months to June 2025.

But there is perhaps a sliver of hope for buyers: one measure of affordability in the UK’s housing market is showing signs of improving, according to Schroders' research.

Chart showing UK house prices relative to earnings

4… while mortgage costs will continue to rise

Any benefit of falling prices relative to earnings is likely to be offset by the rise in debt interest payments. The coming years will see more mortgage holders come to the end of their fixes taken out during the years of ultra-low interest rates and move onto more expensive deals.

Our research shows that debt interest payments are forecast to double as a share of household income in the next few years.

Chart showing mortgage costs due to rise

5. Inheritance tax – no change here, but the net is expanding

Potential changes to inheritance tax (IHT) had been widely trailed in the weekend press prior to the Autumn Statement. In the event, IHT thresholds were left unchanged.

But more estates are being brought over the threshold for paying IHT. The number of people subject to inheritance tax is forecast to rise by 25% by 2028-29.

Table showing forecsts for rising number  of  people subject to inheritance tax

6. Expanding innovation in ISAs

The Individual Savings Account (ISA) regime was changed in several ways. Among these was news of a measure to expand the Innovative Finance ISAs to include Long Term Asset Funds (LTAFs) as qualifying investments.

LTAFs are a new type of investment vehicle to help savers access a wider range of holdings including those which are less readily traded, or “less liquid”. Until very recently these sorts of investments have been available only to large or institutional investors.

The LTAF structure makes them available for a wider investor base and making them eligible for ISAs means savers can benefit from that tax-free ISA wrapper as well. 

Doug Abbott, Head of Wealth, UK Client Group, said: “LTAFs becoming eligible for Innovative Finance ISAs is positive news for investors. We have a good set of product rules and the FCA’s new framework will provide an extra layer of protection for investors. Furthermore, the change to the tax treatment is another major step forwards.”

Other changes to the ISA regime included allowing individuals to save into more than one of the same type of ISA in the same tax year. However, the overall limit of ISA investments in a single year remains frozen at £20,000.

Authors

Duncan Lamont, CFA
Head of Strategic Research

Topics

UK
Equities
Private Assets

For professional advisers only. This site is not suitable for retail clients.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security / sector / country.

Schroders Investment Management Ltd registration number: 01893220 (Incorporated in England and Wales) is authorised and regulated in the UK by the Financial Conduct Authority and an authorised financial services provider in South Africa FSP No: 48998