The MAM Blog – UK Government Policy updates and what this means to investors

Callum Hunter – Trainee Investment Manager

It is no secret that government debt has significantly increased from various support measures implemented to combat the Covid-19 pandemic over the last 18 months. Gross debt now exceeds UK GDP 1 and the UK government faces a difficult decision of controlling the deficit and meeting public sector requirements while avoiding dampening economic growth. 

Following on from the UK budget announcement in March, where it was revealed that a significant increase in corporation tax to 25% would occur in 2023, the UK government released guidance on further polices in September. 

Tax hikes 

On the 7th of September the UK government published “Building back better:  Our plan for Health and Social Care” which included two tax raises designed to raise money that is ringfenced to fund health and social care for the UK’s ever aging population. 

The first tax raise is a 1.25% increase in National Insurance which will be implemented in April 2022 and converted to a separate levy on earned income from 2023 onwards. This increase equates to an additional tax liability of approx. £255 for those earning £30,000 per annum and £1,130 for those earning £100,000 pa.2 

In addition to the Levy on National Insurance, starting in April 2022, the rate of tax paid on dividend income will also increase by 1.25% across all marginal rates. The purpose of this increase is to target income that does not stem from employment and which is therefore not subject to National Insurance Tax. 

The policy change has no impact on the dividend allowance which will continue to allow individuals to earn up to £2,000 per annum tax free. Investments which are held in ISAs will continue to be tax free, highlighting the benefits, now more than ever, in ensuring that investments are held in these tax efficient wrappers and that annual subscription allowances are met if there are funds available to do so. 

The triple lock has been picked 

In an address to the house of Common, Thérèse Coffey (the Work and Pensions Secretary), announced that earnings growth would be temporarily ignored when adjusting State Pensions due to artificially high wage growth from government intervention during the pandemic. The State Pension will therefore increase by the higher of 2.5% or inflation and it was announced in October that this increase will be 3.1% to match the inflation rate. Although the break is deemed by most to be fair and sensible given the artificially inflated figure for wage growth, it does raise some interesting questions – how reliable is the triple lock if the government can deviate from it in stress scenarios and can the government continue to fund the State Pension? 

The UK government has a compounding annual liability which is only going to create an ever-growing burden for the Treasury to pay. The ‘National Insurance Fund’ which is made up of the revenue produced by National Insurance payments covers Maternity allowances, Job Seekers allowance and more, with the largest benefit being the State Pension. The Government Actuary Department has already highlighted the pressure that the existing framework is under, stating in 2018 that without intervention, the fund will fall to zero by 2032. With the recent tax raises being ringfenced for health and social care the pressure on the State Pension continues to increase and will need addressing in the future. 

It is impossible to predict how the government will intervene, which could range from; increasing National Insurance further, restricting expenditure by relaxing the triple lock or increasing the State Pension Age, none of which are policies that will be warmly received by the general public. It is likely that it will be a combination of these factors in the end but the uncertainty around the matter should be considered by individuals. 

As a result, it is important for individuals to make their own provisions through the private sector (whether that be company pensions, personal pensions or savings) to minimise their reliance on state income given the uncertainty. This will ensure that they have sufficient resources available to meet their requirements throughout retirement and of course, is something Murray Asset Management would be happy to assist with. 

1UK government debt and deficit – Office for National Statistics (
2Boris Johnson outlines new 1.25% health and social care tax to pay for reforms – BBC News

The MAM Blog – Scottish Income Tax Rates

Murray Asset Management – Financial Planning Team

The Scottish Parliament now has much greater power to adjust income tax rates for Scottish residents and has taken the opportunity to do so for 2018/19.

  • Firstly, the higher rate of tax has been increased from 40% to 41%, with the threshold restricted to £43,430. The corresponding level in the rest of the UK is £46,350.
  • Secondly, the basic rate of income tax has been split into three bands – the first £2,000 being taxed at 19% (the ‘starter’ rate), the next £10,150, being taxed at 20% (the new ‘basic’ rate) and the remaining £19,430 taxable at 21% (the ‘intermediate’ rate).
  • Finally, the additional tax rate, applying to income above £150,000, has been increased to from 45% to 46%.
  • This divergence creates some complexities because the Scottish Parliament’s powers do not extend to savings interest, dividends or Capital Gains Tax – all of which work by being added to the individual’s other taxable income to determine the rate at which they are payable.

    In addition, National Insurance (NI) rates and thresholds are not controlled by the Scottish Parliament. For example, as NI rates are 12% for basic rate taxpayers and 2% for higher rate taxpayers, Scottish taxpayers’ earnings between £43,430 and £46,350 will therefore now be taxed at 53% (i.e. 41% + 12%), before falling back to 43% beyond this.

    Personal pension and charitable contributions are also affected, as the default rate of relief applied remains at 20%, but a Scottish taxpayer will have the right to claim the additional 1%.

    It is therefore clear that the changes introduced will not only lead to additional tax for Scottish taxpayers, but potentially some confusion and administrative burden.