Finally, today the government announced the long-awaited Autumn Statement 2022, but as expected, Jeremy Hunt has had to make significant changes to tax and spending to address the current cost-of-living crisis and rebuild the economy.
Speaking to those in the House of Commons, the chancellor of the exchequer stated their 3 priorities were “stability, growth & public services” and protecting the vulnerable. In addition, he added they are responding to an international crisis with “British values” and “taking difficult decisions to tackle inflation and keep mortgage rates down”.
The government hopes that this plan will provide a “shallower downturn, lower energy bills, higher growth and a stronger NHS system”, so let’s look at the spending cuts and tax rises that they think will restore market confidence following the turmoil caused by his predecessor’s mini-budget in September.
Tax and pensions
- The 45% additional rate of income tax will be paid on income over £125,140, reducing from £150,000
- The personal allowance (£12,570) and higher rate thresholds (£50,270) have been frozen for an additional two years, until April 2028.
- UK national living wage for those over 23 will increase from £9.50 to £10.42 per hour from April 2023
- The National Insurance (NI) threshold has been frozen until April 2028, a further two years
- The tax-free dividend allowance will be reduced from £2,000 to £1,000 next year and £500 by April 2024
- The Inheritance tax (IHT) nil rate band has been frozen at £325,000, as well as the residence nil rate band (RNRB) at £175,000 for an extra two years until April 2028
- The capital gains tax (CGT) allowance will be halved from £12,300 to £6,000 in April 2023, followed by another cut to £3,000 in April 2024
- Stand Duty Land Tax (SDLT) threshold was reduced in the previous chancellor’s budget on 23rd September. However, in the Autumn Statement 2022, it was reclassified as a temporary reduction to remain in place until 31st March 2025
- No mention of pensions – so the allowances remain as they are (the Annual Allowance at £40,000 and Lifetime Allowance at £1,073,100), and tax relief remains untouched
- They did, however, announce that the State Pension age will be reviewed, and they may publish a new timetable in early 2023
- The hotly debated triple lock for State Pensions will remain and will increase by 10.1% in line with inflation
- Local councils can also up council tax by 5% a year without a local vote. Currently, they can only increase by 3%.
- Electric vehicles will also start to pay road tax from April 2025, and the benefit-in-kind rates will increase by 1% for three years after April 2025.
- The windfall tax on oil and energy company profits has increased from 25% to 35% until March 2028
- A new 45% tax will apply to companies that generate electricity from January
- For households, the energy cap has been extended for another year until April 2024, but it is less generous, with typical bills capped at £3,000, not £2,500
- Those on means-tested benefits will receive £900 in support payments next year
- Pensioners will get £300, and those on disability benefits will get £150
Spending and business
- Public spending will be maintained until 2025
- The NHS budget in England will increase by £3.3bn a year over the next two years
- School spending will increase by £2.3bn
- Defence spending remains at the Nato target of 2% of national income
- Overseas spending will remain at 0.5%
- Support of £13.6bn is set aside to help firms with business rates over the next five years through a mixture of freezes and reliefs
- Import taxes were removed on over 100 products, including food, to keep the costs down over the next two years
Other changes previously announced
Although there have been quite a few changes announced today in the Autumn Statement 2022, a month ago, the then-newly appointed chancellor, Jeremy Hunt, wasted no time reversing many of his predecessor’s announcements.
To recap, read our previous blog on the chancellor’s previous statement, which detailed the changes to corporation tax, income tax and dividend tax already announced.
What does the Autumn Statement 2022 mean for you?
Well, as you can see, most people will see an increase in the tax they pay, unlike the promises of Kwasi Kwarteng back in September. Currently, you start to pay income tax on earnings over £12,570 per year at 20% and earning over £50,270 at 40%. By freezing these bands, any pay increases you might be lucky enough to see will mean more money will be subject to tax and possibly tip you into a higher bracket. For higher earners, reducing the additional rate threshold from £150,000 down to £125,140 will mean more of their earnings will be subject to an additional 5% tax com April 2023.
The previous two statements detailed cuts to the basic rate income tax, reducing it from 20% to 19%. However, this has, not surprisingly, been reversed, and the basic rate income tax remains at 20% for the foreseeable.
The cuts to the capital gains tax allowance and the dividend allowance are significant, with the cut to dividend allowances alone predicted to raise £455m, which goes a little towards the £40bn-£55bn that the government needs to raise over the next few years to bring the country back out of recession.
The freezing of the IHT nil rate band (£325,000) and residence nil rate band (£175,000) will raise an additional £1bn, according to the Office of Budget and responsibility. However, this will mean more money will go to the tax man rather than your loved ones.
What has been the market reaction to the Autumn Statement 2022?
The markets have remained relatively unmoved, as most announcements were expected. However, the pound lost some of its recent gains and fell by 1%. Energy companies initially fell on the news of the additional windfall tax, but some have since recovered, as the tax was also to be expected. So it seems like the markets have given the chancellor the benefit of the doubt until they see the impact of his plan.
Forecasts from the OBR show growth in the economy of 4.2% this year.
Want to know more
Download our comprehensive guide the 2022 Autumn Statement.
In the meantime, if you have any questions about your finances or how the budget changes affect your situation, please get in touch with one of our team.