In light of the dismantling of the former Chancellor of the Exchequer Kwasi Kwarteng’s ‘mini budget’ from September, and his subsequent resignation, the new Chancellor Jeremy Hunt has announced the Autumn Statement this morning.
Hunt has confirmed, as feared, that the UK is officially in recession. He says GDP is forecast to shrink by 1.4% next year, before returning to growth in 2024.
He also confirmed that there have been ‘unprecedented global headwinds.’ Thus, his statement involves ‘substantial tax increases.’
We have summarised the main updates below.
Key points to know:
- 45% rate of income tax to start at £125,000.
- Tax allowance and threshold frozen for a further two years, up to April 2028. These will apply to inheritance tax, capital gains tax, VAT, income tax and pension savings.
- The dividend allowance will be cut from £2,000 to £1,000 next year, and then to £500 in April 2024.
- Freeze on employer’s NI threshold until April 2028.
- VAT threshold maintained until March 2026.
- R&D relief for SMEs to be cut to 86% and the credit rate to 10%.
- Stamp Duty Land Tax (SDLT) cut will remain only until March 2025.
- Capital gains tax (CGT) allowance cut from £12,300 to £6,000.
- There will be a £13.6bn package of business rates support available.
- A revaluation of properties for business rates will go ahead, but there will be compensation.
- The approach to investment zones will now focus on ‘leveraging our research strengths by being centred on universities.’
- R&D funding to increase to £20bn by 2024-25.
- National Living Wage to rise by 9.7% next year.
- Energy price guarantee to be extended, with unit prices capped so average bills are no more than £3,000.
- From January 1st until March 28th, the energy profits levy will increase from 25% to 35%.
- From January 1st, a new temporary 45% levy on electricity generators will be introduced.
- Electric vehicles are no longer exempt from Vehicle Excise Duty.
- Pensions and Universal Credit to rise 10.1% next year in line with inflation.
- Rent rises in social rented sector to be capped at 7%.
- The DWP will receive an extra £280m to tackle fraud and error.
- Defense spending is planned to remain at 2% of GDP.
- £2.3bn put into schools both this year and the year after.
- £8bn for health and social care in 2024-25.
- £3.3bn for the NHS over the next two years.
- Infrastructure investment to continue with over £600bn for capital investment over the next five years.
- Acceleration of efforts to make the UK energy independent and the government will go ahead with building a new nuclear power plant, Sizewell C.
The tax rises are calculated to be around £24bn, while the Chancellor also delivered around £30bn of spending cuts.
Unfortunately, it cannot be said that today’s statement presents much hope for the future. The tone of Hunt’s delivery was bleak and serious, and the Office of Budget Responsibility (OBR) has commented:
‘Over £100bn of additional fiscal support over the next two years cushions the blow of higher energy prices – but the economy still falls into recession and living standards fall 7% over two years, wiping out eight years’ growth.
Over the medium term, around £40bn in tax rises and spending cuts – in roughly equal measure – offsets higher debt interest and welfare costs and gets debt falling as a share of GDP.’
The forecast is grim, however, there are a couple of silver linings. For instance, the increase in the living wage for those over 23 from April 2023, the maintaining of the pensions triple lock, and state benefits increasing in line with inflation next year.
As always, if you would like any further information regarding the above, please feel free to contact us.