Chancellor Jeremy Hunt delivered the Autumn Statement 2022 speech on 17 November 2022. The government’s aim of the new budget is to tackle the living cost crisis in the UK and rebuild the country’s economy.
Hunt unveiled a £55 billion financial plan to restore the UK’s credibility under Rishi Sunak’s government after the “mini-budget” chaos in September under formal leader Lizz Truss.
Some significant changes to observe are the reduction in income tax additional rate threshold, dividend allowance and capital gain tax-exempt amount, increase in Energy Profits Levy, and a few more updates.
Credit: GOV.UK
Globally inflation is runnign high and same is the case in the UK. A country becomes unstable when hit by high inflation. It results in high mortgage rates, expensive food and energy bills, business failure and unemployment. All these erode savings, cause industrial unrest and cut public service funding.
Due to high inflation, central banks are raising their interest rates, which pushes up the cost of borrowing for businesses, families and the government.
Jeremy Hunt clarified his priorities for the new budget statement as stability, growth, and public services.
This guide covers some of the critical changes in the Autumn Statement 2022 that will help you figure out the future changes in your pocket.
Growth and Borrowing
The chancellor forecasted the economy would grow by 4.2% this year which was already in recession due to high energy prices. GDP is expected to shrink by 1.4% next year before rising to 1.3% in the following year, 2.6% in 2025 and 2.7% in 2026. The OBR forecasted a 3.8% growth for 2022 and 1.8% for 2023 in March.
Borrowing in the financial year 2022-23, individuals will be 7.1% of GDP. The chancellor declared underlying debts must have a percentage of GDP within 5 years, and public sector borrowing must offer 3% of GDP.
Tax and National Insurance
- Hunt, in his Autumn statement, declares a substantial tax increase. He reduces the additional threshold from £150,000 to £125,140. Individuals earning £150,000 or more must pay £1,200 more in tax per year.
- The income tax personal allowance, higher rate threshold, inheritance tax threshold and National Insurance thresholds remain constant at their current levels for the next 2 years up to April 2028.
- The dividend allowance will reduce from £2,000 to £1,000 for the next year and £500 from April 2024.
- Capital gains tax annual exemption amount will reduce from £12,300 to £6,000 for next year and £3,000 from April 2024.
- Electric vehicles will no longer enjoy the Vehicle Excise Duty exemptions, but the company car tax rates remain low.
- Windfall taxes will increase to £14 billion, including a temporary 45% levy on electricity producers. There will be nearly a £14 bn tax reduction on business rates.
- Hunt decided to freeze the Employers NICS threshold till April 2028 and will return the employment allowance newly at a higher level of £5,000.
- The deduction rate for the SME scheme will reduce to 86% and the credit rate to 10%; however, the separate R&D expenditure credit rate will rise from 13% to 20%.
- The energy profits levy will rise from 25% to 35% from January 1st to March 2028.
Together it is expected that the taxes amount will raise £14 billion next year.
Public spending
The government aims to increase public service spending for the country’s stability and growth. Hunt promises to grow resource spending at 1% per year in real terms for the next 3 years of the spending review.
Pensions
The government will invest an additional £280m in the Department for Work and Pensions to handle benefit fraud and error for the next 2 years. A review on the state pension age will soon be published by early 2023.
Defence and international commitment
Since the beginning of Putin’s invasion, the UK has offered £2.3 billion in military support. Hunt promises to continue the defence budget of at least 2% of GDP, maintaining consistency with NATO commitment.
Education
The UK government wants to raise school standards for every child, and Hunt promises to invest an additional £2.3 billion annually from 2023 in every school.
Health and Social Care
Hunt decided to free up hospital beds by allocating an additional grant funding of £1 billion next year and £1.7 billion the year after for adult social care. Hunt promises to provide Scandinavian quality with Singaporean efficiency services. He further promises to increase £3.3 billion in NHS funding.
Economic growth
Hunt asked the government to focus on economic growth and making energy, infrastructure and innovation their priorities. A new nuclear power plant at Sizewell C will provide reliable low-carbon power. Furthermore, he will double the investment in the energy efficiency of homes and industries by £6 billion from 2025.
Infrastructure
Hunt says there will be no reduction in the capital budget for the next two years and will maintain them in cash terms for the next 3 years. He promises to make a £600 billion investment over the next five years.
Innovation
There will be no reduction in the government’s research and development budget, and the funding will increase to £20 billion by 2024-25.
Hunt aims at making Britain “the world’s next Silicon Valley”. The Solvency II reforms applicable to insurers will unlock billions of pounds in investment.
Cost of living support
The energy price of a typical household will rise from £2,500 to £3,000 on average in the next year.
There will be new one-off payments to means-tested benefit households of £900, pensioner households of £300, and individuals on disability benefits of £150.
The government will provide an additional £1 billion in funding for further extension of the household support fund.
The social housing rents will remain at 7% next year and will avoid rent hikes of up to 11%. The national living wage will increase to 9.7% next year, reaching £10.42 an hour.
Conclusion
The economic stability of a country largely depends on its fiscal sustainability. The new budget statement sets out a plan to ensure national debt falls as a part of the country’s economy over the medium term. It ensures to reduce of debt servicing costs, save money for public service investments, control inflation, and give business stability and confidence.
