With a focus on stability and growth, Jeremy Hunt has shared his Autumn Statement. Peter Webb, our Head of Tax Advisory, offers an analysis of the announcements.
Jeremy Hunt, the Chancellor of the Exchequer, delivered his first “Budget” this week, acknowledging his plans were shaped by difficult decisions with no easy answers. On more than one occasion he talked about creating a ‘balanced path to stability’ and there was a definite sense of the government’s wish to re-establish some sense of credibility with these fiscal plans.
In stark contrast to the disastrous mini-budget announced by Liz Truss and Kwasi Kwarteng (just 55 days ago) Mr Hunt’s plans have been scrutinised by the Office of Budget Responsibility. That previous mini-budget led to market chaos and a possible £60bn black hole in government finances. That is more than a £1bn a day for Liz Truss’s tenure as Prime Minister. As Rachel Reeves (Shadow Chancellor) said to Jeremy Hunt when he announced the final reversal of the remaining tax cuts in Kwasi Kwertang’s mini-budget “an arsonist is still an arsonist even if they run back into the house with a bucket of water”.
Jeremy Hunt had previously warned that “Decisions of eye-watering difficulty lie ahead”. So are our eyes watering after the new Chancellor’s first fiscal statement? There was a real focus on avoiding politically difficult references to tax rises. However, the decision to freeze thresholds, rate bands and reduce allowances are stealthier ways for the government to collect more tax from us, and we will be paying more tax for many years ahead as a result.
Here are some of the key headlines at a glance:
Personal tax
- The 45% rate of Income Tax will apply to any income over £125,140, down from £150,000 drawing many more into paying tax at the highest rate.
- Income Tax, personal allowances and higher rate thresholds will be frozen for two more years, until April 2028 effectively increasing the amount of tax we will all pay.
- National Insurance and Inheritance Tax thresholds will be frozen for another two years, until April 2028.
- Tax-free allowances for dividends and Capital Gains Tax will be cut next year and in 2024. This is the closest we came to outright tax rises being announced for individuals in the Budget.
Pensions and benefits
- Pensions will rise in line with inflation by 10.1%, honouring the triple lock protocol which will remain in force.
- Benefits will also rise by 10.1% in line with inflation.
New corporate taxes
- A windfall tax on the profits of oil and gas firms will increase from 25% to 35%, until March 2028.
- New temporary 45% tax on companies that generate electricity will apply from January 2023.
The Institute for Fiscal Studies has warned that the UK now faces its biggest fall in living standards since records began; so perhaps Jeremy Hunt has delivered on his promise that “decisions of eye watering difficulty” are now being made. Early signs are that markets have reacted calmly to the announcements. As ever time will tell.
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