UK finance minister Jeremy Hunt on Thursday announced a number of tax increases and proposed tighter public spending in his £55 billion Autumn budget plan.
Hunt said the budget was required after the serious blow dealt to the UK’s fiscal reputation by former prime minister Liz Truss.
Outlining the £55 billion plan, with almost half of the money coming from tax rises, Hunt said the UK economy was already in recession and set to shrink next year.
“Credibility cannot be taken for granted and yesterday’s inflation figures show we must continue a relentless fight to bring it down, including an important commitment to rebuild the public finances,” Hunt told the Westminster parliament.
Hunt announced changes that mean more people in the UK will pay basic and higher-rate income tax.
He lowered to £125,000 the threshold at which people pay the top 45% rate — except in Scotland — as well as cutting tax-free allowances for income from dividends.
Hunt froze until 2028 a threshold at which employers start to pay social security contributions, which will cost companies more.
A levy on energy companies’ profits will rise to 35% from 25% from January 1 until 2028, and a new temporary 45% tax will be imposed on electricity generators, to raise a total of £14 billion next year, Hunt said.
However, pensions and welfare benefits will rise in line with inflation.
Hunt had warned before Thursday’s announcement that he could only slow a rise in borrowing costs by demonstrating to markets that the UK’s massive £2.45 trillion debt will start to fall as a share of GDP.
REACTION:
Scotland’s Deputy First Minister John Swinney: “Today’s statement shows that households across Scotland are paying a steep price for the economic mismanagement of the UK Government, with average household disposable incomes forecast to fall by 7% in real terms according to the Office for Budget Responsibility.
“This would erode just under 10 years of growth in living standards, taking them back to levels not seen since 2013-14, meaning they would not recover to pre-pandemic levels until after 2027-28 – a devastating indictment of the UK Government’s management of the economy.
“Inflation is eating away at the Scottish budget, and due to the lack of additional funding in 2022-23 and the financial restrictions of devolution, we have had no choice but to make savings of more than £1 billion.
“I welcome the Chancellor’s decision to increase benefits in line with inflation from next financial year and retain the triple lock on pensions – both measures we have consistently called for.
“However, the higher energy price cap from April is still unsustainable for many households. The proposals may limit the impact for some consumers, but the UK Government needs to carefully consider the affect a £500 rise in energy bills will have on those who are in or at risk of fuel poverty.
“And there’s still no certainty on how businesses struggling to stay afloat will be supported from April after the Energy Bill Relief Scheme ends.
“The constant U-turns on tax by the UK Government have made planning for the Scottish Budget more challenging this year.
“We will take time to consider the implications for Scotland before setting out our own plans as part of the normal budget process.
“I am pleased the Chancellor has finally listened to our calls to tax more of the windfall gains in the energy sector, but he should have gone further to remove the poorly targeted investment allowance, which only serves to encourage short-term investment in fossil fuels rather than promoting long-term, sustainable energy solutions.
“This leaves me with the difficult task of setting Scotland’s Budget for 2023-24 with no hope of financial flexibility to make a real difference in the lives of those who need it most.”
SSE Chief Executive Alistair Phillips-Davies: “SSE has always believed in paying our fair share of tax and think a well-designed levy on extraordinary profits, where they are actually realised, is reasonable.
“We also believe in treating the cause, not just the symptoms of the energy crisis and we look forward to hearing more from government about how it will support the massive investment in homegrown clean energy that this country needs to end our dependence on expensive imported gas and cut bills in the future.
“Our commitment to this is clear with a potential £24bn pipeline of shovel-ready projects in the UK that will support thousands of good jobs in communities across the country.
“We will now work constructively with the government to see how this new tax will work in detail and how we can deliver a cheaper, cleaner and more secure homegrown energy system that protects families and business from energy price shocks in the future.”
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown: “This budget faced the challenge of a Ninja in hobnail boots.
“In order to appease the bond markets, Jeremy Hunt had to clatter down the corridors of power, meting out hefty blows on all sides, delivering all the festive joy and financial pain of Hans Gruber without memorable one-liners.
“Meanwhile, in order not to upset the political applecart, he had to do it with enough stealth to escape the notice of significant numbers of voters.
“As a result, we have stealth taxes galore, accompanied by significant tax raids on everyone from higher earners to investors and entrepreneurs …
“Stealth taxes mean that long after the fuss of the Autumn Statement dies down, the taxman will be quietly picking your pocket for years to come.
“Income tax bands were already frozen to 2026 and will now be frozen to 2028.
“We don’t tend to notice stealth taxes, because they only kick in as we get a pay rise.
“It means we lose more of our extra pay – so we’re never actually worse off in nominal terms.
“Of course, once you take inflation into account, it’s another matter entirely, and the taxman taking an extra slice leaves us with an even harder struggle to make ends meet.”
James Richard Sproule, Chief Economist UK at Handelsbanken: “Where the government have made a choice is where they are looking to deploy the limited amount of cash they have gathered in the wake of tax rises and spending restraint.
“Controversially for a Conservative Government Hunt has chosen to protect a number of expensive capital spending commitments.
“Chief amongst these is the £100 billion High Speed rail link from London to the North West of England, HS2 (this is the answer to the question what is the government doing to ‘level up’ wealth across the country, whether this is an effectual response is not discussed) and the ‘triple lock’ on pensions (the state pension rising by the highest of inflation, wages or 2.5%), which will cost approximately £10 billion next year.
“This triple lock is being maintained at a time when considerable extra resources are now to be granted to the most vulnerable households and real wages are falling, leaving many people feeling as if (Conservative voting) pensioners are being bribed at the expense of workers.
“The expectation that longer-term investment programs would face a cash crisis has not come to pass, while other areas that were set to be cut back, such as defence, are now subject to a broader review on future security needs …
“Fiscal drag is an important stealth tax, it comes about as the thresholds of tax (both income tax, as well as inheritance and other taxes) are not raised in line with inflation for at least another 5 years.
“The exchequer takes approximately £900 million for every one percentage rise in inflation, so this tax raises north of £8 billion and given our forecast that inflation is going to be more persistent than the Bank of England expects, it will continue to be raise considerable sums.
“Alongside this, the threshold for the highest rate of tax (45%) has been lowered from £150,000 to £125,140.
“Finally while the Chancellor set out that he only approved of windfall taxes in particular circumstances, but these were in fact one of those special circumstances and that as a result the windfall tax on energy firms is now set to rise from 25% to 35%.
“The result is that the Conservative Government is taking the total tax burden as a percent of GDP up to levels near those of the late 1940’s when Labour’s hero Clemet Attlee was Prime Minister, leaving a number of Conservative MP’s (and many Conservative voters) very unhappy.
“The Chancellor has promised spending restraint in the medium term, most departmental budgets are rising by one percent per annum in real terms, less than the anticipated rise in the broader economic growth. How much patience voters will have with this approach remains to be seen.
“We are going to be reviewing our macro-economic forecasts in light of this budget and with the significant increases to the tax burden (which come alongside rising energy prices, rising interest rates and inflation) set to hit consumer expenditure hard, we anticipate the economy will move into recession in 2023.
“How deep and long this recession persists will have to await more detailed analysis.”
British Chambers of Commerce director general Shevaun Haviland: “The Chancellor has stayed true to his word in focusing on financial stability and targeting support for the mostvulnerable in society. But in the teeth of a recession, this statement will not increase business confidence.
“Businesses will look at today’s announcements and welcome support with business rates, and retention of the employment allowance, though the reduction in the dividend allowance will impact many smaller firms.
“Almost half of businesses tell us they will find it difficult to pay their energy bills once the Government’s Energy Bill Relief Scheme ends on 31 March 2023. The sooner we get clarity on where future support will be targeted the better.
“It is good to hear plans to improve energy efficiency across the economy, but we need to see greater urgency as firms battle with their bills in the here and now.
“It is also good news that Sizewell C will proceed, and we are relieved that HS2 and Northern Powerhouse Rail have not been cut further. These projects will provide a major boost to regional economies as well as improving our national infrastructure.
“The Government must do more to improve conditions for businesses to invest and grow, otherwise we will be starting from a weak base to power our recovery once global economic conditions stabilise.
“The Chancellor’s Statement is light on green innovation, doesn’t address current labour shortages and has nothingon boosting export led-growth.”
Helen Morrissey, senior pensions analyst, Hargreaves Lansdown: “Inheritance Tax (IHT) used to be seen as a wealthy person’s tax, but a mix of booming house prices and threshold freezes mean this is no longer the case.
“This latest freeze will only make matters worse. Inheritance tax (IHT) receipts received by HMRC during the financial year 2021/22 were at an all-time high of £6.1 billion, with estates over this level facing eye watering 40% tax bills …
“After weeks of speculation about whether the triple lock would return next year many pensioners will be viewing today’s news with a sigh of relief.
“A 10.1% increase along, with the extra cost of living payments of £300, will be hugely welcome for pensioners struggling to keep up with their bills.
“The decision to uprate Pension Credit by 10.1% comes as a welcome surprise and will boost the income of single pensioners to around £201 per week. They will also be in line for cost-of-living payments of £900.
“However, it’s also worth saying that this increase will only come into effect from April so there is a tough winter ahead.
“The reinstatement of the triple lock after its suspension last year will cool some of the discussion around its long-term viability for a while, but with a review of state pension age due to be published soon, now is the time to carry out a comprehensive review of the state pension to ensure it best helps those who need it most, both now and into the future.”
UK Labour Party finance spokeswoman Rachel Reeves: “This government has forced our economy into a doom-loop where low growth leads to higher taxes, lower investment and squeezed wages with the running down of public services, all of which hits economic growth again.”
Vishal Chopra, Partner and Head of Tax for Scotland, KPMG UK: “This was a statement that focussed on tackling the immediate issues in public finances: giving stability and confidence to business and the City, while ensuring the entire country is aware and prepared for the potential stormy months ahead.
“It was, as expected, both serious and in line with the narrative the Chancellor had been outlining since taking up the role.
“From a business tax perspective, the majority of announcements were made in an effort to create stability through springing no major surprises, although the changes to the energy profits levy does risk making it harder for the UK to attract the investment it needs in the sector.
“From a personal tax perspective, the biggest story was the extension of the freeze to current income tax and national insurance thresholds, and a reduction in the threshold for the additional 45% rate of income tax.
“One key area to emphasise is the heavy lifting the current high level of inflation is doing in delivering tax revenues.
“The combination of frozen tax thresholds and inflation induced wage increases means more and more people are getting dragged into higher tax rates.
“This was not a big reforming budget. There was very little to indicate what the future might hold from a tax policy perspective.
“Attention now turns to Holyrood and the Scottish budget in December. If today’s measures are anything to go by, we can expect further tax increases in Scotland as the Government prepares to tackle the recession and choppy waters ahead.”
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown: “This time around a bond market tantrum has not materialised although gilt yields have begun to edge up a little, perhaps an indication of some nervousness about significant spending cuts being pushed into the long grass.
“The mantra from this administration is appears to be that those who have the broadest shoulders can bear the biggest weight.
“The big ogre of inflation which has caused so much financial pain, does look as though it will recede sharply next year.
“It’s clear the economy will already be facing plenty of deflationary forces in the months to come, from rising unemployment to the biggest drop in living standards on record and cuts right now to spending risk pushing the UK into a much deeper downturn.
“The pledge to maintain some key infrastructure projects is also highly welcome with improvements to the rail network, investment into cleaner greener energy and efforts to improve the UK’s tech sector going ahead.
“But growth prospects would be boosted if the UK reassessed its current trading relationship with the EU.
“British brands like Fortnum and Masons turning down Christmas hamper orders for the EU, because of ‘delivery issues’, epitomises the struggle of UK businesses which are desperate to expand but feel cut off from their closest overseas market.’’
David Ovens, joint managing director of investor Archangels: “While tax rises will inevitably hit many small business owners hard, Archangels broadly welcomes the support provided to entrepreneurs.
“We are particularly encouraged by the government’s renewed commitment to innovation with an ambition to turn Britain into the next Silicon Valley.
“Positive support from the Chancellor includes a commitment to look at how regulation could change to better support safe and fast introduction of new emerging technologies, protection of the government’s R&D budget and the retention of investment zones.
“While there has been a halving of the CGT allowance, we are also relieved to see that the government has not pursued a strategy of making fundamental changes to the CGT regime, which is important for entrepreneurs and founders, by way of providing reward for the years of risk they have taken to build their business.”
Alex Davies, CEO and founder of the Wealth Club: “Freezing the inheritance tax threshold for yet another two years – until April 2028 – is another kick in the teeth for those wanting to pass down their wealth to loved ones.
“We believe that this extended freeze combined with rampant inflation will increase average IHT bills to £297,793 in 2025/26 and to £336,605 in 2027/28.
“Contrary to what many think, inheritance tax doesn’t just affect the super-rich. It will be the thousands of hardworking families to bear the brunt, as they get caught in the cross hairs of high property prices and frozen IHT allowances.
“Figures out just last month show that HMRC raked in another £3.5 billion in inheritance tax receipts in the six months to September 2022.
“This is £400 million more than in the same period last year and continues the upward trend.
“The good news is that with some careful planning there are lots of perfectly legitimate ways you can eliminate or keep IHT bills to the minimum, so more of your wealth is passed on to your loved ones rather than being syphoned off by the taxman …
“However necessary, today’s announcement is brutal for higher earners and investors.
“Around 250,000 more people will be paying the top rate of tax, many allowances will be frozen until 2028 and the dividend and capital gains tax allowances are being slashed.”
Prof Adrian Pabst, Deputy Director, National Institute of Economic and Social Research: “While government are not cutting capital spending for Levelling Up projects, the fundamental problems with the government’s Levelling Up strategy endure – fragmented funding, local authorities spending inordinate time and precious resources on competing with one another for small pots of money and a lack of decision-making powers and fiscal firepower.
“Sustained regional regeneration requires devolving powers in areas such as skills, housing, transport and R&D, underpinned by greater local control over tax and spending decisions.”
National Institute of Economic and Social Research – Full Response: “The Chancellor should have provided more support to UK households at a time when they are suffering the largest fall in their real incomes since records began in 1956.
“Given that fiscal targets are arbitrary, these could have been set to enable the Chancellor to bring forward more spending while still committing to sustainable public finances in the medium run.
“The Chancellor has tightened fiscal policy by around £60 billion over five years and also delayed meeting the fiscal target of a falling debt to GDP ratio by 2 years, giving him more flexibility to hit his fiscal targets.
“In a bid to ensure debt is on a sustainable trajectory within the new 5-year fiscal target, the Chancellor has announced a cumulative £30 billion in tax rises and £30 billion in spending cuts.
“Against a background of persistent higher interest rates, the cost of servicing government debt remains high, which leaves the UK’s public finances vulnerable to economic uncertainty.
“The UK has gone from £48 billion in tax cuts announced in September to raising taxes for all working people over the next few years. This, in combination with an expanded windfall tax on profits made by energy companies, presents significant uncertainty to businesses and households.
“Maintaining previous spending commitments for public infrastructure projects and providing increased expenditure for key social institutions is appreciated, but the Chancellor should have gone further to prevent systematic vulnerability and encourage sustainable growth, especially beyond the immediate horizon of the next 2 years.
“The switch to more targeted support for energy bills is a step in the right direction, but the overall rise in energy prices and a lack of support for low-income households will mean that many are worse off. The government’s policy still involves an expensive universal subsidy which will disproportionately benefit high-income earners, as they use a much greater amount of energy.
“The increases in the living wage along with Universal Credit and pensions rising with inflation, presents a positive direction of travel for the households hardest hit by inflation.
“However, tax rises, the further increases in energy bills for those not on Universal Credit and wages not keeping up with inflation, will mean households are likely still far worse off than they were last year.”