The chancellor Jeremy Hunt has delivered his Autumn Statement on 17 November, which was originally planned for 31 October. Mr Hunt’s aim is to bring inflation under control, provide stability for the government and stimulate growth in the economy.
Latest Financial Autumn Statement
In what has been described as a sombre Autumn statement, Mr Hunt spent under an hour outlining his plans to undo much of the tax-cutting mini-budget unveiled by his predecessor as chancellor, Kwasi Kwarteng, 55 days previous. In a deliberate tactic to avoid too many surprises, out of fear of causing markets to react skittishly, Mr Hunt released enough details ahead of the statement to help warm up the public to his difficult decisions. He said, “These are real challenges for families up and down the country, adding, “I’m not pretending these aren’t going to be difficult times, but there’s a plan, there’s hope – and if we follow this plan, if we stick with it, we can get through to the other side.” The government states that their priorities are stability, growth and public services. The Autumn Statement sets out the government’s plan to reduce national debt in proportion to the economy. This Autumn statement has reversed nearly all the measures in the Growth Plan 2022. The Autumn Statement sets out measures on taxation and spending, aiming to repair public finances. Here we examine the latest announcements and what they mean for you.
Tax Thresholds Frozen
Tax thresholds are to remain frozen until April 2028, which means millions will pay more in tax, raising revenue for the government. This is often referred to as a stealth tax. Freezing allowances in this way is also known as fiscal drag, which describes the stealthy process of dragging more taxpayers into paying income tax and pushing others into paying a higher rate. For example low-income households will start paying basic rate tax when their personal annual income creeps above the rate of personal tax-free allowance, currently set at £12,570. Those earning nearly £50,000, will find themselves moving up into the higher 40% tax rate. In the 2021 spring budget, Rishi Sunak in his role as chancellor at the time, implemented a four-year freeze on personal tax thresholds that began in April 2022. Now Mr Hunt has gone even further, by prolonging this freeze for a further two years, meaning no change in thresholds until 2028. Furthermore, fiscal drag will cause families to lose a proportion of their child benefit, which is tapered, so the more you make over £50,000 a year, the more you need to pay back. Those earning over £60,000 will have to pay it all back.
Income Tax
As expected, Hunt has kept the three main tax rates: 20p basic, 40p higher and 45p additional rate, with the first £12,570 of income tax-free and the 40% rate starting at £50,270. He did lower the threshold at which taxpayers start paying the 45p top rate of income tax from £150,000 to £125,140. This will pull a further 250,000 people into the top rate. For someone making £150,000, this change means they will pay an additional £1,243 tax a year. This stands to raise major revenue for the government in the current climate as wages rise in response to inflation.
National Insurance
National Insurance and Inheritance Tax thresholds will be maintained at their current levels for another two years, until April 2028. The government will also reduce the Dividend Allowance and Capital Gains Tax Annual Exempt Amount. The Autumn Statement sets the National Insurance Secondary Threshold at £9,100 until April 2028. The government will implement the Organisation for Economic Co-operation and Development (OECD) Pillar 2 rules, to deliver a global minimum corporate tax rate of 15%.
Pensions Triple Lock
The state pensions triple lock will be maintained, which means pensioners will see a 10.1% rise in weekly payments.
Spending on Public Services
Spending on public services will rise more slowly than previously planned. Some departments are even facing cuts after the next election. Over the next two years leading up to the next general election, there will be financial support for households, education, the NHS and social care. But following 2025 spending cuts are planned for many departments. R&D tax credits are to be reformed, aiming to support innovation. Mr Hunt denies postponing difficult decisions until later. He argues that shielding the state pension, benefits, and the announcements on spending for education and health, proves that this is not another era of austerity.
Minimum Wage
UK minimum wage for people over 23 will increase from £9.50 to £10.42 an hour. Chancellor Jeremy Hunt announced the 9.7% increase during his Autumn Statement, to help workers cope with rising prices. This is estimated to influence approximately two million workers.
Energy Price Cap
The household energy price cap has been extended by one year beyond April however it will be less generous. Typical bills will be capped at £3,000 a year instead of £2,500. It has been announced that there will be additional cost-of-living payments for the “most vulnerable”, of £900 for those receiving benefits, and £300 for those receiving a pension.
Windfall Tax
The government is extending the windfall tax on oil and gas companies operating in the North Sea. The windfall tax on oil and gas companies will increase from 25% to 35%, raising £55bn from this year until 2028. Rishi Sunak introduced the tax when he was chancellor, in May, describing it as a 25% Energy Profits Levy in, now this will be imposed for longer at a higher rate. In the Autumn Statement, Chancellor Jeremy Hunt announced this would increase to 35% from January 2023, and stay in place until March 2028. It had previously been scheduled to finish at the end of 2025. A windfall tax is an extra levy imposed by a government on a company. The idea is to target firms which benefit from something they were not responsible for, in other words, a windfall. Energy firms are receiving more money for their oil and gas than they were last year. Demand increased when Covid restrictions were lifted and the Ukraine war led to concerns about energy supply. There were widespread calls to increase the tax after Shell and BP reported large profits, boosted by high oil and gas prices, due to Russia’s invasion of Ukraine. However, both argue that they have lost money by stopping investments in Russian oil firms.
Difficult Forecasts
Short of blaming the budget announced under Mrs Truss’s leadership, Mr Hunt said there had been mistakes, but insisted the government had “corrected those within weeks”. He says that other countries, such as Germany, France and America were all facing similar problems as a result of the conflict in Ukraine and rising energy prices. The Office for Budget Responsibility (OBR) produced an economic forecast to accompany the Autumn statement, which predicts that high inflation and rising interest rates will cause consumers to spend less, moving the economy into a recession “lasting just over a year”. It forecasts that the economy will shrink by 1.4% in 2023, before growth slowly picks up again and it says that household income will fall by 7% over the next 18 months.
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