Against rising inflation and a bleak economic outlook, the Chancellor delivered on his promise of “eye-watering” tax rises in today’s Autumn Statement by freezing personal allowance thresholds and lowering the threshold of the 45p rate.
With a sobering fiscal black hole reported in the long-anticipated Office of Budget Responsibility’s fiscal forecast, Jeremy Hunt confirmed the expected freeze of the personal allowance thresholds until April 2028. These stealth tax rises will apply to inheritance tax, capital gains tax, VAT, income tax, and pension savings.
Hunt explained that he had applied “fairness and compassion” when administering the tax rises to ensure that the poorest wouldn’t bear the biggest burden of tax rises, and stressed that “those with the broadest shoulders” will pay the most tax.
“There is a global energy crisis, a global inflation crisis, and a global economic crisis. But today with this plan for stability, growth, and public services, we will face the storm. We do so today with British resilience and British compassion.”
An example of this was the Chancellor lowering the threshold of the 45% rate from £150,000 to £125,000. He also rolled out a number of other tax-rising measures including halving the £12,300 tax-free allowance for capital gains to £6,150.
Among the other measures Hunt announced in response to the bleak forecasts published alongside the Autumn Statement were:
- An expansion to the windfall tax from 25% to 35%
- Freezing personal allowance thresholds until April 2028
- Capital gains tax (CGT) allowance cut from £12,300 to £6,000
- Freeze inheritance tax nil rate bands until 2027- 28
- Revised the energy support package from April 2023
- The dividend allowance will be cut to £1,000
- Electric cars are no longer exempt from vehicle excise duty
- Freeze employer’s NI threshold until April 2028
- VAT threshold maintained until March 2026
- R&D relief for SMEs was cut to 86% and the credit rate to 10%
- SDLT cut will remain only until March 2025
- Increasing the national living wage for over 23 years old to £10.42
The tax rises are calculated to be around £24bn, while the Chancellor also delivered around £30bn of spending cuts.
While the stealth taxes will likely garner all the headlines, the other significant tax rise was the expansion of the windfall tax from 25% to 35% until 2028.
Hunt also set his sights on R&D tax credits, continuing the work of Sunak when, as Chancellor, he signalled in the Spring Statement that the government would reform the tax relief. Hunt announced a cut in the production rate for the SME scheme to 86% and the credit rate to 10%.
“The OBR has confirmed that these measures have no detrimental impact on the level of R&D investment in the economy,” said Hunt.
Brushing off speculation that the government may cut R&D budgets, Hunt said the government is protecting £20bn in R&D investment in 2024-25.
As for the other business taxes, Hunt decided to freeze the employer’s NI threshold until April 2028. “We will retain the employment allowance at a new higher level of £5,000. This means 40% of all businesses will it no NICs at all,” said Hunt.
And noting that “the VAT threshold is already more than twice as high as the EU or OECD averages”, Hunt also said the threshold will be maintained at its level until March 2026.
He also said that a crackdown on avoidance and evasion will raise an additional £2.8bn by 2027-28. Perhaps to administer this, the government allocated a further £79m over the next five years for HMRC to tackle more cases of serious tax fraud and address tax compliance risks among wealthy taxpayers. It expects this investment to bring in £725m over the next five years.
Hunt didn’t have any rabbits to pull out of the hat, but he did break from the gloom of tax rises and spending cuts to give the backbenches something to cheer about, including increasing the living wage for those over 23 from £9.50 an hour to £10.42 an hour from April 2023.
Against inflation hitting a 41-year high of 11.1%, Hunt didn’t have too much wiggle room for too many nods to appease the backbenches, but there were some silver linings to soften the morning newspaper headlines including raising benefits in line with September’s 10.1% inflation and retaining the triple lock on pensions.
And after paying back the energy price guarantee soon after he moved in No11, Hunt explained that once the universal support ends in April 2023, there will be a new scheme for the vulnerable and households.
A change of tone
The tone of the Autumn Statement was a marked change of direction after the mini-Budget in September. Hunt even referenced his predecessor’s catastrophic fiscal statement at the start of his speech by saying, “Unfunded tax cuts are as risky as unfunded spending”.
“As a result of government borrowing, the pound has strengthened and the OBR says today that the lower interest rates generated by the government’s actions are benefiting our economy.”
In September, the then Chancellor Kwasi Kwarteng unleashed a package of tax cuts – including abolishing the top rate of tax and cancelling the corporation tax increase – in an effort to ignite growth in the UK economy.
However, Kwarteng’s plans backfired and the pound plunged to its lowest-ever level against the dollar. The fallout of the mini-Budget eventually led to Liz Truss resigning as prime minister and Kwarteng’s successor Hunt reversing the majority of the tax announcements.
Unlike September’s fiscal announcement, today’s statement was accompanied by OBR’s forecast. The Chancellor made efforts to reference the findings of the OBR, considering the impact of its absence in September, but the report was not a pleasant read for the government.
Framing the tough tax rises and public spending cuts as a response to high global inflation, rather than a UK-centric issue, Hunt said: “High inflation is the enemy of stability,” said Hunt. “It means higher mortgage rates, more expensive food and fuel bills, businesses failing and unemployment rising. It hurts the poor the most and eats away at the trust upon which a strong society is built.
“The Office of Budget Responsibility confirms global factors are the primary cause of how countries are still dealing with the fallout from a once-in-a-century pandemic.”
According to Hunt, the OBR said that the decisions made by the Chancellor have made the outlook better than it was after the catastrophic mini-Budget. “Lower interest rates generated by the government actions are benefitting our economy.”
Confirming that the UK is now in recession, the OBR report outlined starkly the impact of global headwinds and Hunt added that the government’s actions today will help inflation fall sharply from next year. “The OBR confirmed that because of our plans recession is shallower and inflation is reduced,” claimed Hunt.