Taxes up, spending down
It was possibly the most eagerly awaited Autumn Statement ever following the somewhat calamitous mini-Budget that was unleashed on the UK economy back in September 2022.
Jeremy Hunt, the fifth Chancellor of the Exchequer in the past 32 months, delivered his first Autumn Statement on Thursday, 17 November.
The backdrop was challenging - inflation running at more than 11%, interest rates rising fast and the UK economy, thought by many, to already be in recession.
And although Autumn Statements are largely intended to be updates ahead of the main Budget in March - this was a Budget in all but name.
The Chancellor said that the government would deliver a plan to tackle the cost-of-living crisis and rebuild the UK economy, and he promised that it would be done fairly, offering “fair solutions” despite “difficult decisions”.
Unlike the mini-Budget, the Office for Budget Responsibility (OBR) was allowed to get in on the act this time and their forecasts show that the economy will grow by 4.2% this year before shrinking in 2023 by 1.4%.
The OBR already believes that the economy is in recession and (essentially) significantly reduced its growth forecasts, while increasing its estimates for government borrowing (when compared with its March numbers).
It also said that inflation will average 9.1% this year and 7.4% in 2023, with unemployment rising to 4.9% in 2024.
Niyi Idowu, Partner at ATN Partnership said:
“Although there is a lot to digest, the headline that you should take away is that taxes are going up and public spending is being cut, at least in real terms. Naturally, there is some good old spin around the numbers, but in essence, that is what is happening.
“The reaction from the markets has been fairly flat; the main indices are down, but nothing compared to what we saw after the mini-Budget, suggesting that what was announced was largely what most analysts expected.
“Falls are amongst energy companies that will be seeing an additional tax levy”.
The Chancellor announced that the income tax personal allowance of £12,570, together with higher rate tax thresholds, would be frozen until April 2028, as will National Insurance and inheritance tax thresholds.
This is an extension of two years on the freeze already announced
The Chancellor also announced that the National Minimum Wage would be increasing from £9.50 to £10.42 per hour from April 2023 for anyone aged 23 or older. State pensions, means-tested benefits and disability benefits will all increase by 10.1%, in line with inflation.
It is also worth noting that Local Councils in England will be allowed to increase Council Tax by up to 5% per year (up from 3%) without a local referendum and the revaluing of business premises for non-domestic rates will be going ahead.
On the flip side of the coin, government spending will fall in real terms with scheduled spending maintained until 2025 before being allowed to “grow more slowly than previously expected”.
It appears that this means spending will be capped at 1% per year from 2025 for three years
The NHS will receive an additional £3.3bn per year for two years and schools an extra £2.3bn. Spending on defence will be maintained at 2% of national income.
Other notable announcements
- Help with domestic energy bills will be extended until April 2024, although at a reduced rate
- Electric cars, vans and motorcycles will pay a road fund licence from April 2025
- The lifetime cap on social care costs in England due next year has been delayed by 2 years
- Import tariffs are being removed on over 100 goods for two years to help reduce costs
There were also a number of announcements regarding initiatives to support innovation, research and development, particularly around energy, infrastructure and science - but the announcements were essentially focused on ‘intentions’ and plans to “bring forward” plans.
Tahmina Ahmed, Senior Client Manager at ATN Partnership, said:
“To be honest, the Autumn Statement was pretty much what we expected. Tax thresholds were frozen, benefits and pensions increased in line with inflation, and spending fell in real terms.
“I think it’s great news that the Government has continued the transitional relief scheme for non-domestic rates and frozen the business rates multiplier.
“There was fear that rates would rise in line with inflation which would have been devastating.
“There was nothing further regarding the Energy Bill Relief Scheme for businesses, but I guess at least it wasn’t cut back”.