Response to the Autumn Statement 2022 by Tax Partner, Maybeth Shaw.
Jeremy Hunt will no doubt be hoping his Autumn Statement will avoid the controversy and impact of his predecessor’s mini-Budget back in September, that led to the collapse of the markets and the removal of the Chancellor and subsequently, the Prime Minister.
With inflation at a 40 year high, a recession now underway and an increasing squeeze on households and businesses from the cost-of-living crisis, the Chancellor’s room for manoeuvre will have been curtailed following the unravelling of that mini-Budget.
Above all, Mr Hunt will be seeking to demonstrate to the international markets that the UK Government has the economy under control with serious and workable policies, providing economic stability for the nation. The repetition of the line that “Britain pays its debts” was aimed squarely at delivering this message.
The Treasury and Government have been preparing the ground with rumours over recent weeks about potential tax increases and spending cuts. There has been lots of speculation and, now that we finally have the reality, there haven’t been too many surprises.
The first thing to notice is that we have a return of more normal economics - with the Government no longer spending without any clear indication as to how it plans to pay.
In his statement, the Chancellor said those with more should contribute more. However, he also stated that he wanted to avoid tax rises that could damage growth.
So, who will be paying more?
Higher earners. The announcement that the threshold for the 45p rate of income tax has reduced from £150k per annum to £125k should result in hundreds of thousands of workers being brought into the highest-level tax band.
Tax free allowances on dividends and capital gains tax will also be slashed. The dividend allowance will be cut next year from £2,000 to £1,000 and then to £500 from April 2024. The Annual Exempt Amount for capital gains will be cut from £12,300 to £6,000 in 2023 and then reduced further to £3,000 from April 2024.
Drivers of electric vehicles (EVs) have been impacted too with the growing staple for company cars also taking a hit - EVs will no longer be exempt from excise duty and company car tax is set to increase in the coming years but to remain lower than petrol, diesel, or hybrid vehicles.
Although the Employers National Insurance Contributions threshold will be frozen until April 2028, it’s notable that the employment allowance is being kept at the higher level of £5,000 for this period.
With the cost of energy driving inflation and squeezing businesses and household incomes, it’s no surprise that the Chancellor has sought to target those producers making unexpected profits from this misery. The windfall tax targeting the profits of some producers is being extended and from January 2023 to March 2028, the Energy Profits Levy will rise from 25% to 35%.
Will this be enough to rebalance the books?
On its own, it’s unlikely, which is why what the Chancellor didn’t announce is almost as important as what he did. Although there were budget uplifts for key departments such as health and education included, it was notable that inflationary increases for all departments were not, with the potential result being cuts in real terms. No doubt more will emerge about this in the coming days.
Although the substance of today’s announcement will be examined in great detail in the coming days, there were also headline grabbing announcements for some sections of society. Those on fixed incomes should find some comfort today as pension credit will increase by 10.1% with pensions and certain benefits being tied to inflation next year.
The cap on energy bills will continue for a further 12 months but will increase from £2,500 to £3,000. An extra £900 of energy bills support will be provided to households on means-tested benefits with £300 more to pensioners and £150 for those on disability benefits.
How this will all be rolled out in Northern Ireland is a question for another day and many column inches and hours of airtime will likely be dedicated to this issue.
The media reaction coupled with the level of welcome today’s Statement receives from the markets will determine the success or otherwise of the Chancellor’s gamble. As we will be poring over the finer detail of the announcement in the coming days, it should quickly become apparent if the Chancellor may have escaped the fate of his predecessor. As ever when it comes to Treasury announcements, time will tell.