Chancellor of the Exchequer Jeremy Hunt attempted to bring stability back to the markets with an Autumn Statement driven more by threshold freezes than major tax increases. However, the Office for Budget Responsibility (OBR) forecast indicated the largest decline in living standards since records began and he also admitted the UK "is now in a recession". A deeper look into the plans and forecasts paints a bleak picture for the UK in the coming years.
According to the Chancellor, the plans outlined in the Budget will help inflation drop “sharply” from 9.1% this year to 7.4% in 2023. However, the EY ITEM Club, a leading UK economic forecasting group, predicts inflation will decline faster than the Office of Budget Responsibility (OBR) expects.
The Chancellor said the government will deliver £55bn of spending cuts and tax rises in a bid to reduce inflation and stabilise interest rates, but promised that it will be delivered in a “balanced way” to support the economy. The Chancellor also announced tax measures that “will bring more people into higher tax bands and add more complexity to the system for many taxpayers,” according to Frank Haskew, head of taxation strategy at ICAEW.
Hunt confirmed there will be a “substantial” increase in tax but was quick to point out that the government will not raise headline rates of taxation.
The Chancellor announced threshold freezes to income tax, NIC and inheritance tax for an additional two years, until April 2028. Elsewhere, the threshold for the 45p rate of income tax will be reduced in April 2023, from £150,000 to £125,140, bringing more people into the higher rate band of tax.
The dividend allowance will be halved from £2,000 to £1,000 from April 2023 and again to £500 in April 2024. Similarly, the Chancellor will cut the annual exemption amount for capital gains tax (CGT) from £12,300 to £6,000 from April 2023. It will then fall to £3,000 from April 2024 – its lowest level since 1996. This will make the disposal of assets a more tax-heavy and much less attractive option.
The freezes will have a gradual effect on the amount of tax that businesses and households will pay over time, bringing more people into higher tax bands
The Chancellor announced that public spending will now increase more slowly. Spending Review settlements to 2024/25 will be honoured in full, but day-to-day spending will increase more slowly in 2025 onwards, and capital spending will be maintained at current levels in cash terms.
He committed to increasing the schools budget by £2.3bn per annum from next year, and adding £3.3bn to NHS funding each year for two years. Social care spending will increase by up to £4.7bn in the same period.
The Chancellor also said that, as a result of government tax and spending decisions, funding for devolved nations is increasing by approximately £3.4bn over 2023-24 and 2024-25.
Energy and Investment
The Chancellor committed to maintaining the Energy Price Guarantee. The £2,500 cap on typical energy bills will increase to £3,000 by April. Businesses hoping to see more clarity on what happens to the Energy Bill Relief Scheme (EBRS) from April 2023 were also disappointed. Public sector bodies will also be affected once EBRS comes to an end.
The Chancellor committed to investing in UK energy supplies, announcing a £700m investment into the Sizewell C nuclear power plant, and a pledge to reduce energy consumption by households and businesses by 15% through energy efficiency schemes.
Commitments to the Northern Powerhouse and HS2 rail projects were maintained, as was the gigabit broadband rollout. The second round of the Levelling Up Fund will distribute at least £1.7bn to local infrastructure projects. Further regional devolution, with elected mayors in Suffolk, Cornwall, Norfolk and the North East, was also announced. The Chancellor recommitted to the £20bn research and development budget.
£14bn raised from windfall tax increases
The Chancellor plans to increase the windfall tax on oil and gas companies from 25% to 35% and extended by two years, until March 2028. The tax hike is expected to raise £14bn in 2023. Hunt told the House of Commons that he had “no objection” to windfall taxes if the energy companies’ profits were produced by a surge in energy prices.
No clarity on IR35 reforms
After months of uncertainty regarding IR35 rules, the self-employed have been left in the dark with no update in the Autumn budget. As part of the government’s September’s mini-Budget, Kwasi Kwarteng laid out plans to repeal the 2017 and 2021 changes to the off-payroll working rules to simplify the UK tax system. But a month later, Hunt delivered a surprise economic statement effectively reversing a raft of measures outlined by his predecessor. Among them the decision to repeal the 2017 and 2021reforms to the IR35 off-payroll working rules.