There has been a lot of turmoil in the UK economy since the mini-Budget delivered by then Chancellor Kwasi Kwarteng in September.
On the back of the ensuing market unrest, newly appointed Chancellor, Jeremy Hunt, has delivered his Autumn Statement for 2022 with a clear plan – including £55bn of spending cuts and tax rises – to tackle the black hole in the government’s finances, which has largely been created by the Covid-19 pandemic.
The government is under pressure to make decisions that will tackle the rapidly rising cost of living, whilst also making plans to safeguard the UK economy now that the country has entered another recession.
Mr. Hunt insisted that the measures announced were fair and would protect the most vulnerable, yet critics say what has been announced will not be enough to help people through the tough times ahead.
We break down the key points of the Autumn Statement for you to try and make things clearer to understand.
Taxes and wages
Benefits and the cost of living
Public sector finances
Business and infrastructure
Taxes and wages
It has been obvious for a couple of years that taxes were going to need to be increased to pay for the extra borrowing and spending generated by the Covid-19 pandemic. However, not everyone will experience a tax increase just yet, while some will benefit from a slight increase in wages.
The top 45% additional rate of income tax will be paid on earnings over £125,140, instead of £150,000 (apart from Scotland). The government estimates an extra 660,000 people will pay the additional rate of income tax.
The income tax personal allowance of £12,570, and higher rate threshold of £50,271, will be frozen for further two years on top of the original plan, until April 2028.
The Office of Budget Responsibility (OBR), which independently assesses the government’s economic plans, estimates that freezing tax thresholds until 2028 will create an extra 3.2 million new taxpayers, and will mean 2.6 million more people will pay a higher rate of tax.
National Insurance and inheritance tax thresholds will also be frozen until April 2028.
Electric cars, vans and motorcycles will likely no longer be viewed as the less expensive option, as they are to pay road taxes from April 2025, on top of the rising cost of electricity to recharge.
Local councils in England will be able to increase council tax by up to 5% a year without a local vote, instead of the current maximum of 3%.
Tax-free allowances for dividends and capital gains tax are due to be cut next year and in 2024.
The chancellor was keen to point out that he himself was an entrepreneur, but not all his measures were kind to small businesses and their owners. Business owners who pay themselves dividends are set to be worse off, with the annual tax-free dividend allowance being reduced from £2,000 to £1,000 in April 2023, then reduced further to £5,000 in April 2024. This measure will not be welcomed by limited company business owners, and some may even question whether it is worthwhile to continue as a self-employed professional.
The household energy price cap will be extended for one year beyond April 2023, but typical bills will be capped at £3,000 a year instead of £2,500.
There will be new one-off payments of £900 to households on means-tested benefits. There will also be new one-off payments of £300 to pensioners and £150 for individuals who are on disability benefit.
The chancellor also announced additional funding of £1bn to further extend the household support fund.
Benefits will rise by 10.1% (in line with September’s inflation rate), while the benefit cap will be increased with inflation next year.
Lifetime cap on social care costs in England due in October 2023 delayed by two years.
Social housing rent increases in England will be capped at 7% from April 2023, instead of 11% due to inflation.
The national living wage will increase by 9.7% next year to £10.42 per hour.
Many people’s fears were allayed when it was announced that the pensions triple lock would be kept. The triple lock is a commitment from the government that pensions would rise by whichever was the largest of three figures: annual inflation, average earnings rises, or by 2.5%.
On top of the increased energy price cap…
The windfall tax on profits of oil and gas firms will be increased from 25% to 35% and will be extended to March 2028.
A new 45% levy on companies that generate electricity will be applied from January 2023.
Public sector finances
The treasury is to increase the NHS budget by £3.3bn a year for the next two years.
The budget for schools will increase by an extra £2.3bn a year.
The chancellor stated he wanted to free up hospital beds by investing in social care and will allocate an extra £1bn next year and £1.7bn the year after, which will be funded by savings from delayed reforms.
Defence spending is to be maintained at 2% of national income, which is a NATO target.
Overseas aid spending will be kept at 0.5% of Gross Domestic Product (GDP) for the next five years, which is below the official 0.7% target, with the chancellor saying the government would not be able to return to the 0.7% target until the economic conditions allow it.
Hunt says that government borrowing in the current financial year 2022-23, will be 7.1% of GDP.
The OBR estimates the budget deficit will be £177bn in 2022-23.
In its previous forecasts in March, the OBR had estimated borrowing would be 3.9% of GDP, or £99.1bn in cash terms, in 2022-23. Therefore, the actual figures are twice what was forecast, which highlights the scale of the problem.
Public sector net debt is forecast to peak at 97.6% of GDP in 2025-26. It is then predicted to fall to 97.3% of GDP by 2027-28.
The chancellor also announced two new fiscal rules:
underlying debt must fall as a percentage of GDP within five years.
public sector borrowing must be below 3% of GDP.
Business, infrastructure and innovation
Windfall taxes will raise up to £14bn for the treasury, including the levy on electricity producers.
There will be almost a £14bn tax cut on business rates for 700,000 businesses.
Employment allowance will remain at £5,000.
The Chancellor says he will not cut capital budgets (money for the acquisition or maintenance of fixed assets such as land, buildings, and equipment) for the next two years (to the next general election) but will maintain them for the next three years. This means that capital budgets won’t grow as planned but will still increase.
HS2 will be kept, as will “northern powerhouse” rail, and new hospitals.
£600bn will be invested over the next five years.
More devolution will take place across England to boost levelling up.
The government’s research and development budget will be protected, with an increase to £20bn by 2024-25.
Tariffs will be cut to support business supply chains.
Investment zones will be kept, with further announcements in the spring budget.
The announcement of the Autumn Statement has caused some experts to question whether the Chancellor has any real plans for growth, with the Director General of the Confederation of British Industry (CBI) claiming the Autumn Statement focuses only on stability.