A month after his first budget announcement, Chancellor of the Exchequer Jeremy Hunt gave his first full statement to the House of Commons.
With the economy in a £55 billion hole of national debt, tax hikes and spending cuts were expected to be announced. A five year plan was put into place to recover the damage, but what were the main announcements?
Let’s find out.
The economic view
To begin his Autumn Statement, Hunt delivered an overview of the economy as provided by the Office for Budget and Responsibility (OBR).
Despite the fact that the economy is currently in a recession that will last until 2023, it will have expanded by 4.2% by the end of 2022. However, the OBR predicted a drop of 1.4% in the next year.
“Without the energy price guarantee and other measures, the recession would be 1.1 percentage points deeper”, an OBR spokesperson said.
As GDP increases by 1.3%, 2.6%, and 2.7% during the coming years, the economy will fully return to its pre-pandemic level in the fourth quarter of 2024, with inflation falling to the government’s target of 2% in 2027.
However, strong inflation will undo eight years of gains by drastically decreasing earnings and living standards in the 2023/24 tax year.
Hunt then got to the heart of the Autumn Statement by making a number of personal tax-related announcements.
These included the threshold for the additional rate of tax decreasing from £150,000 to £125,140 starting in April 2023, causing a further 250,000 people to fall under the top tax bracket.
Furthermore, the capital gains tax exemption, also referred to as the yearly exempt allowance, will drop from its current level of £12,300 to £6,000 in the 2023/24 tax year and subsequently to half that amount in 2024/25.
In April 2023, the tax-free dividend amount will also drop from £2,000 to £1,000 per share, and will be reduced once more to £500 in April 2024.
Hunt also announced a number of tax threshold freezes in an effort to raise tax revenue. Those were:
- Personal allowance for income tax will stay at £12,570 for a further two years, until 2028.
- National Insurance contributions will be payable from a level of £12,570 until 2028.
- The inheritance tax threshold, which has been set at £325,000 since April 2009, has been frozen until 2028.
Hunt also announced many subsidies to help families with their energy costs, as well as news that electric vehicles won’t be exempt from vehicle excise duty tax starting from 2025.
In addition to the April 2023 business rates review, Hunt announced a number of adjustments to help firms with the revaluation, including:
- Multipliers will be frozen in 2023/24 at 49.9p and 51.2p, rather than increasing to 52.9p and 54.2p.
- Relief for retail, hospitality and leisure will increase from 50% to 75%. That means up to £110,000 per business in 2023/24.
- A transactional relief scheme will place ‘upward caps’ on bill increases caused by changes to rateable values at the 2023 revaluation.
- A ‘supporting small business scheme’ will cap bill increases at £600 per year for certain small businesses.
According to the Chancellor, the SME credit rate will decrease from 14.5% to 10% and the additional deduction for SME R&D relief will be cut from 130% to 86%.
The R&D spending credit was raised from 13% to 20% to “rebalance” the two reliefs and stop bogus SME programme claims.
Only time will tell whether these measures are enough to protect and improve the UK economy.
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