Chancellor delivers Autumn Statement

Chancellor of the Exchequer Jeremy Hunt has delivered his Autumn Statement, setting out a raft of tax increases and spending cuts in a bid to shore up the UK’s public finances.

Addressing the House of Commons, Jeremy Hunt set out three priorities of his Autumn Statement: stability, growth and public services; with the announcement following the news that inflation had reached 11.2%, its highest level since the early 1980s. The Office of Budget Responsibility has also revealed it believes the UK economy to be in recession, and is predicting a 1.4% contraction to output in 2023.

Opening his speech to Parliament, Mr Hunt said:

“In the face of unprecedented global headwinds, families, pensioners, businesses, teachers, nurses and many others are worried about the future.

“So today we deliver a plan to tackle the cost-of-living crisis and rebuild our economy.”

Key highlights of the Chancellor’s Autumn Statement are detailed below:

Income Tax

Jeremy Hunt has announced that personal allowance, the earnings threshold below which no income tax is paid, will remain at £12,570 until 2028. National Insurance thresholds and the higher rate threshold will also remain frozen.

Earnings above £125,140 will now be taxed at 45%, bringing the threshold for the additional rate of income tax down from £150,000. Tax brackets and rates for workers based in Scotland remain unchanged.

Council Tax and business rates

Planned changes to how business rates are calculated have been confirmed to go ahead from next year and will take effect from April 2023. Due to how many warehouse and logistics properties are expected to see their rateable value rise, a proposed online sales tax has also been scrapped. Further information on the 2023 revaluation can be found on the government website.

Business rates relief schemes worth £13.6 billion over the next five years will also help support smaller firms and certain sectors.

Local councils have also been given additional powers to increase council tax in a bid to alleviate financial pressures facing many local authorities in the wake of the coronavirus pandemic. Local authorities may now raise council tax rates by a maximum of 5% each year – previously increases over 3% would require a local referendum.

Other taxes

Other changes to taxation announced by the Chancellor include:

• Tax free allowances for dividends to be cut next year to £1,000, and to £500 from April 2024.
• The Annual Exempt Amount for capital gains tax will be cut from £12,300 to £6,000 next year and then to £3,000 from April 2024.
• Electric cars, vans and motorbikes will be subject to Vehicle Excise Duty from 2025 in line with forecasts that half of new vehicles will be EVs, although their rates will remain lower than for petrol and diesel vehicles. Company car tax rates for electric fleets will also remain lower, with only 1 percentage point increases from 2025.
• Import taxes on over 100 products, including some food items, have also been removed to help combat rising costs.

Energy

Government support with energy bills will be eased from April 2023, with the government’s Energy Price Guarantee rising to £3000 a year for the average household – this is a 20% on current rates, but below the £3,700 figure estimated based on currently wholesale gas futures under the previous Ofgem price cap scheme.

Support payments for all household regardless of income will come to an end. Households on means-tested benefits will receive £900 in support payments to cover energy costs, with pensioners receiving an additional £300, and those in receipt of disability payments getting an extra £150.

Companies that generate electricity will also, from January, be subject to a higher 45% tax rate. A Windfall Tax on oil and gas profits has also been extended to March 2028, and will increase to 35%.

Infrastructure and investment

The Chancellor has recommitted to the UK’s £20 billion R&D budget and made numerous infrastructure commitments, including backing HS2 to Manchester and the East-West Northern Powerhouse high-speed link.

A second round of awards of the Levelling Up Fund worth £1.7 billion has also been announced to be allocated before the end of 2022.

In response to reports of fraud, the Chancellor has also cut the deduction rate for the SME R&D Tax Relief scheme to 86%,and the credit rate to 10%. He has however increased the rate of the separate R&D expenditure credit from 13% to 20%.

Public spending

Scheduled public spending will be maintained until 2025, but grow more slowly after that date, Jeremy Hunt confirmed. The NHS budget will increase by £3.3 billion, and schools spending by £2.3 billion each year for the next two years. Commitments to hold defence spending and overseas aid at 2% and 0.5% of GDP resepctively will also be retained.

Minimum Wage, Pensions and Benefits

The National Living Wage will increase by just under 10% in April 2023 for all workers over 23. The minimum hourly rate of pay will rise from £9.50 to £10.42.

The state pension, means-tested benefits such as Universal Credit, and disability payments will all be increased in line with last month’s CPI of 10.1%.