What might Philip Hammond's Autumn Statement have in store for investors?

This Wednesday, 23 November, Philip Hammond will deliver his first Autumn Statement since taking office as Chancellor of the Exchequer in July. What might it contain?

Theresa May’s Government has set out its stall as wanting to create, “A country that works for everyone, not just the privileged few”. Actions speak louder than words, but those words make it sound as though some of the tax breaks enjoyed predominantly by wealthier citizens might find themselves in the Chancellor’s sights.

Previously the Foreign Secretary and Secretary of State for Defence, Mr Hammond is something of an unknown quantity in comparison to his predecessor, George Osborne. He has, though, said that he wants to return to the pre-Gordon Brown era in which the Autumn Statement was simply an economic and fiscal update rather than a second Budget at which policy decisions are announced.

However, Mr Hammond has already said that this Statement will include a modest commitment to further infrastructure spending, so it looks as though it will include policy announcements after all.

We have listed below a number of areas that Mr Hammond might address. They are grouped into changes Clarion would welcome and changes we would not like to see.

Each has been given an entirely unscientific “likelihood” score out of ten. Watch this space on Wednesday afternoon to find out how right or wrong we were, and what the financial planning implications might be.

Changes Clarion would welcome

• Increase or ideally scrap the pensions lifetime allowance: it is logically and, arguably, ethically bankrupt both to limit the amount a person can contribute to a pension and to tax them punitively if the investments bought with those limited contributions grow successfully. However, scrapping the limit would be a dramatic reversal of more than a decade of pensions policy, and we don’t believe it’s likely to happen on Wednesday. Likelihood: 1/10
• Increase or ideally scrap the pensions annual allowance: if the Government is going to limit the total value of pension fund that individuals can accrue, why should it also limit the way they get to that maximum? The annual allowance is particularly unfair to entrepreneurs, who often have unpredictable incomes, and to those who succeed financially later in life – people the Government ought to be encouraging, not punishing. But, again, scrapping it would overturn a regime that has been in place for ten years , and much of the press would portray it as a handout to bankers, so it probably won’t happen. Likelihood: 1/10
• Simplify Inheritance Tax by increasing the Nil Rate Band (NRB) and scrapping the planned Residence Nil Rate Band: You need a brain the size of our Head of Paraplanning’s to understand the new Residence Nil Rate Band, and even he had to look a few things up while writing this article. It would be far easier (and fairer, in our opinion) just to increase the NRB to ￡500,000 for everyone. Strangely, we think it would also play quite well with the electorate. Likelihood: 3/10
• Scrap the planned reform of tax on buy-to-let income: it is manifestly unfair that small, private landlords should in future be unable to offset mortgage interest against tax at the rate they actually pay it while their larger, incorporated competitors can do so. The housing crisis needs to be addressed, but not in such a vindictive way that punishes those who have a bit more wealth and tilts the playing field in favour of those who have a lot more. Likelihood: 2/10

 What Clarion would not like to see

• Changes to the basis of pension tax relief: We understand the argument that the majority of pension tax relief goes to those at the upper end of the earnings spectrum but we believe any changes would just punish those who earn more, and thus find themselves in a position to save more, later in life. Changing to a flat, statutory rate of tax relief would also, as we have said previously, only be workable if employer contributions ceased to be an allowable business expense (otherwise, even if formal salary sacrifice were abolished, remuneration structures might evolve so that wages were suppressed across the board but employer pension contributions became much more generous). Likelihood: 2/10
• Increasing the role of Lifetime ISAs: In its currently planned form the Lifetime ISA will probably have its uses, though being the primary vehicle for successful retirement saving is unlikely often to be one of them (subject to advice, of course). We are opposed to any moves to replace tax-relieved pensions, which fall outside the member’s estate, with ISA-type investments, which fall within it. Likelihood: 3/10
• Further tinkering with Venture Capital Trusts (VCTs) / Enterprise Investment Schemes (EISs): Successive budgets have seen the rules governing investments eligible for VCTs and EISs changed. These are a “soft target” that can be hit without a murmur from anyone except the Financial Times and, arguably, the way they are currently used does not always fit with the spirit of the legislation.However, if he feels he must reform these incentives, constant tinkering is no way to do so. It would be far preferable either to leave them alone or to carry out a once-and-for-all review in order that investments can be planned, and businesses run, with certainty. Likelihood: 3/10
• Reversal of the last Budget’s Capital Gains Tax (CGT) cuts: Before George Osborne delivered his last Budget we predicted he would increase CGT in order to close the gap between taxation of assets and income. Instead he shocked virtually everyone and cut it. This was good news for clients but it’s hard to see how it fits with the new Government’s rhetoric. Tax rate changes normally have to wait for the Budget, so we are unlikely to see anything happen with immediate effect, but we would not be surprised if Mr Hammond were to signal his intention to look at this area in time for the March Budget. Likelihood: 1/10 (at Autumn Statement); 5/10 (at March Budget).