Government’s Autumn Statement

The Chancellor has just presented the Government’s Autumn Statement. The main highlights are as follows:

Taxation and wages:

• The threshold for when the highest earners start paying the top rate of income tax will be brought down from £150,000 to £125,140
• Income tax, personal allowance and higher rate thresholds will be frozen for a further two years, until April 2028 – this means that millions of people will pay more in tax when their incomes rise
  

  Band	Current	New	Rate
  Personal Allowance	First £12,750 earned**	Frozen until 2028	0
  Basic Rate	£12,571 to £50,270	Frozen until 2028	20%
  Higher Rate	£50,271 to £150,000	£50,271 to £125,140	40%
  Additional Rate	Over £150,000	Over 125,140	45%

  **reduced by £1 for every £2 earned between £100,000 and £125,140

• The main National Insurance and inheritance tax thresholds will be frozen for a further two years, until April 2028
• The National Living Wage will be increased from £9.50 an hour for over-23s to £10.42 from April next year
• Tax-free allowances for dividend and capital gains tax are due to be cut next year and in 2024

Energy:

• Help for energy bills will be extended, but it will be less generous from April next year
• There will be targeted support with the cost of living for those on low incomes, disability and pensioners
• A windfall tax on the profits of oil and gas firms will increase from 25% to 35% and be extended until March 2028
• New “temporary” 45% tax on companies that generate electricity will be applied from January

Economy and public finances:

• The Office for Budget Responsibility (OBR) judges the UK to be in recession, meaning the economy has slowed for two quarters in a row
• It predicts growth for this year overall of 4.2% but that the size of the economy will shrink by 1.4% in 2023
• The UK’s inflation rate is predicted to be 9.1% this year and 7.4% next year
• Government will give itself five years to hit debt and spending targets, instead of the current three years

Other measures:

• Means-tested benefits, including Universal Credit, will rise in line with inflation (10.1%)
• State pensions will also rise by that same amount
• Rent rises in the social sector will be capped at 7% in the next financial year
• Lifetime cap on social care costs in England due in October 2023 delayed by two years
• Sizewell C nuclear plant to go ahead
• Northern Powerhouse rail and HS2 also to go ahead as planned

Government spending:

• Defence spending to be maintained at 2% of national income – a Nato target
• Overseas aid spending to be kept at 0.5% for next five years, below the official target of 0.7%
• NHS budget will increase in each of the next two years by an extra £3.3bn
• Schools will get an extra £2.3bn next year and the year after

Whilst the devil in the detail will emerge in the coming days and weeks, it looks like the UK is going to face a tough few years with the majority of households seeing a continued squeeze on income whilst prices are set to continue to rise.