Following September’s disastrous mini budget, the Autumn Statement was intended to restore stability and confidence in the UK economy. Clearly some sacrifices needed to be made, but balance also needed to be found, between addressing the gap in public finances and supporting households through the cost of living crisis.
The main measures announced in the Chancellor’s speech are outlined below.
The Economy
- The economy has contracted for two quarters in a row and is now officially in recession.
- Growth of 4.2% is projected for this year, although a reduction of 1.4% is likely in 2023. Modest growth is then predicted for the following three years.
- In the days before the speech, it was announced that inflation had reached 11.1%, its highest point in over 40 years. The overall inflation rate is predicted to be 9.1% for 2022 and 7.4% in 2023.
- Unemployment rates are likely to reach 4.9% by 2024.
- Borrowing for the current financial year is anticipated to be 7.1% of GDP.
- It is believed that the measures announced in the Budget will cut public borrowing by half.
- Public sector debt is expected to peak at 97.6% in 2025/2026, before starting to reduce.
Personal tax
- The threshold for the 45% rate will be reduced from £150,000 to £125,140. For someone earning £150,000, this will cost an extra £1,243 per year.
- The dividend tax allowance will be reduced from £2,000 to £1,000 in April 2023. A further cut, to £500, will follow in 2024.
- The Capital Gain Exemption, currently £12,300, will be cut to £6,000 in April 2023, and to £3,000 in April 2024.
- The thresholds for Income Tax, National Insurance, and Inheritance Tax will be frozen for two additional years, to 2028. This will increase taxes in real terms.
- Electric vehicles will no longer be exempt from vehicle excise duty as of 2025. They will also start to pay road tax.
Pensions
- The triple lock on the State Pension will be maintained, and Pension Credit will increase with inflation.
- A review into the State Pension age will commence in 2023.
- The Lifetime Allowance will remain at the current level, although there was no mention of extending the current freeze to 2028 in line with some of the other tax thresholds.
Energy Crisis
- The energy cap will be retained beyond April 2023, but will rise to £3,000 thereafter. This will increase energy bills further, although does offer a degree of certainty to households.
- Support payments for those on means tested benefits will increase to £900. Pensioners will receive £300, while people on disability benefits will receive £150.
- Windfall taxes on energy firms will increase to 35% and will be extended to 2028.
- Companies which generate electricity will face a new 45% tax on profits.
Business
- Business rates will be cut by £13.6 billion, benefiting around 700,000 businesses.
- Employment allowance will be kept at £5,000.
- The scope of import taxes will be reduced, potentially reducing costs on over 100 items.
- Plans for an online sales tax will be scrapped.
- Research and development spending will increase, with the aim of turning the UK into the next Silicon Valley.
Property
- The recent reduction in stamp duty, by lowering the threshold to £125,000, will be kept in place until 2025. This is intended to temporarily support the property market through the recession.
- Council tax may increase by up to 5% per year without a vote, up from 3% currently.
- Rental increases in social housing will be capped at 7% instead of rising with inflation.
Work and Benefits
- The National Living Wage wage will increase to £10.42 per hour.
- Benefits will rise by 10.1%, in line with inflation.
- Efforts will be made to get more people into work, increase their hours, and earn more money.
Public Services
- Public spending will not be cut, but will grow more slowly than originally planned.
- A further £3.3 billion will be earmarked for the NHS and £2.3 billion for education.
- Defence spending will be maintained at the NATO target of 2%.
How Will Your Money Be Affected?
Those earning over £125,000 will pay more tax, in addition to losing their tax-free personal allowance. This will be compounded for anyone receiving dividend income, as the tax-free portion will eventually be reduced by 75%.
Tax will also increase when you sell property (other than your main residence) and any other investments. It is likely that tax-advantaged investments will grow in popularity.
The pound weakened slightly on the back of the announcement, although daily fluctuations have been occurring for some time now. However, the financial markets have not reacted significantly, mainly because tax increases had already been predicted and were priced in.
Conclusions
It was no secret that some difficult decisions needed to be made and that the new chancellor would take a drastically different path to his predecessor. Decisions to focus tax increases at the wealthier end of the spectrum, while offering some protection to the more vulnerable, have been welcomed.
However, there are difficult times ahead, and it has been argued that the Budget does not go far enough. The cost of living is still the main concern for many families and with a recession now confirmed, the forecast for the next two years is bleak. The measures were focused on surviving, with little mention of how, or indeed if, the UK could be returned to a position of strength and prosperity.
