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Autumn Statement 2022: A summary of key changes
Context, they say, is everything. It was certainly at the forefront of Chancellor Jeremy Hunt’s mind when he delivered the Autumn Statement to the House of Commons on 17 November.
Before making any policy announcements, the Chancellor heavily underlined the prevailing conditions in the global economic landscape. He referenced the spectre of recession. He spoke of the war in Ukraine’s role in pushing energy and food prices higher. He highlighted its contribution to a sustained period of inflation, which central banks are seeking to control through interest rate rises.
And just as costs for purchases and borrowing have gone up for businesses and consumers, so they have also increased for the government, which has accumulated higher levels of debt in the wake of both Covid-19 and the energy crisis.
Bringing stability to this situation is the Chancellor’s primary goal – particularly after the unsettling impact of the Mini-Budget, almost all of which was reversed by Jeremy Hunt when he replaced Kwasi Kwarteng in October.
Economic stability, in tandem with the Bank of England’s actions to control inflation, is a key ingredient in the plan to reduce national debt, to pave the way for future investment in public services, and to build confidence for investment and growth.
However, the Chancellor pointed out that “economic stability relies on fiscal sustainability”, and he proceeded to set out a plan for fiscal sustainability built on “fairness”. This encapsulated a series of measures where a larger share will be paid by “those on the highest incomes and making the highest profits”.
Here is a selection of key headlines from the Autumn Statement:
- From April 2023, the 45p higher-rate income tax threshold will reduce from £150,000 to £125,140.
- Thresholds for income tax personal allowance, National Insurance and Inheritance Tax will be frozen until April 2028 – two years longer than previously planned.
- There will be a reduction in the Dividend Allowance from £2,000 to £1,000 in 2023 and to £500 from April 2024.
- The annual exempt amount for Capital Gains Tax will decrease from £12,300 to £6,000 in 2023 and then to £3,000 from April 2024.
- The National Insurance Secondary Threshold will be fixed at £9,100 until April 2028.
- The minimum wage increases to £10.42 per hour.
- The government has pledged an investment of £13.6 billion over five years to help with business rates costs. Relief for businesses in the retail, hospitality and leisure sectors will also be extended and increased.
- The Energy Price Guarantee will be maintained through winter but will rise to £3,000 from April 2023. A national programme will be introduced to reduce energy consumption by 15% by 2030.
- From 1 January 2023 to March 2028, energy companies will pay 35% rather than 25% on profits.
- A temporary 45% Electricity Generator Levy will be applied on the “extraordinary returns” made by electricity generators.
- The Chancellor enforced the triple lock on pensions, meaning the state pension will increase by over 10% from April 2023, bringing it in line with inflation, which currently stands at 11.1%.
The Autumn Statement might not have generated any real stand-out headlines, but its impact will be felt in terms of a gradual real-term drop in disposable incomes.
Increasing numbers of people will spill into higher tax brackets over time as wages rise, the additional rate threshold falls, and other income tax brackets remain locked in place.
With inflation already eating away at real-terms wealth, Real Household Disposable Income per person is predicted by the Institute for Fiscal Studies (IFS) to decline by 7% over 2022 and 2023. The IFS points out that 4% of adults, around 2 million people, will be paying income tax at the additional rate by 2027-28. This compares with around 200,000 people when it was introduced in 2010.
But income tax is not the only place to feel the Chancellor’s icy touch. Inheritance Tax (IHT), already frozen since 2009, has also been extended to 2028. Therefore, if housing assets continue to rise then more people are likely to pay IHT, having exceeded either the £325,000 nil rate band or £500,000 residence nil rate band.
The decreasing dividend allowance, along with reductions in the CGT annual exempt amount, will also ultimately contribute to more revenue flowing from household wealth into the Treasury’s coffers. The freeze in the National Insurance contribution threshold, also until 2028, will have a similar effect for businesses.
These measures have led to the Autumn Statement being labelled a “stealth tax raid”, but Chancellor Hunt has argued they are necessary to make any looming downturn shallower than it otherwise might have been while reducing inflation.
Whether it provides the stability for future growth remains to be seen. In the meantime, it is likely to result in tax getting more complex for more people, which in turn places more importance on the value of accessing expert advice to optimise your tax liabilities and protect your wealth.
The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. Vintage Wealth Management or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.
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