Autumn Budget: The UK Aims For Stability & Growth
Yesterday, the eagerly awaited Autumn Budget was announced, with Chancellor Jeremy Hunt outlining tax changes and spending cuts in order to fill a £54bn “black hole” and “rebuild” the UK’s finances with a series of tax changes and spending proposals.
At the G20 summit in Indonesia this week, Rishi Sunak admitted that the UK’s reputation had taken “a bit of a knock” and vowed to restore the economic stability of the country. The Prime Minister said that tax rises and spending cuts in Thursday’s Autumn statement were needed to fix a “difficult” situation but would be done in a “fair” way.
The Autumn Statement is the third fiscal update presented to the public in just two months, following the mini-budget in September from Kwasi Kwarteng and then the subsequent reversal from Hunt of most of those changes.
From Stamp Duty cuts to a rise in minimum wage, a lot of positives have come out of today’s 54 minute announcement, leaving many feeling confident that the government can navigate the UK out of a recession using the Chancellor’s three pillars – stability, growth and public services.
It’s no secret that the UK economy is in a difficult position. The Bank of England believes the country is at the start of a long recession and interest rates continue to rise, with inflation at 11.1%.
With millions of households and small businesses feeling the impact of higher energy bills and mortgage repayments, has Jeremy Hunt been able to restore confidence, having only been Chancellor for less than 5 weeks?
Read on to see what has been announced and how it will affect you.
Tax Thresholds Frozen
The Chancellor announced a freeze on income tax personal allowance thresholds. These thresholds were already frozen until 2026. This will now be extended for a further 2 years until 2028.
Ultimately this will mean millions of people will pay more tax. As wages increase, the proportion of their earnings that are taxed will also increase. More people will also move into higher tax brackets meaning more people are paying higher rates.
Inheritance tax thresholds are also frozen until 2028.
Top Income Rate Tax Threshold Reduced
The threshold for when high earners start paying the top rate of income tax has been reduced from £150,000 to £125,140.
In real terms, this means that thousands of workers will move into the highest tax band and a person on a £150,000 salary will pay an additional £1,200 income tax annually at the 45p rate.
Tax-Free Dividends and Capital Gains Tax Allowances Reduced
Tax-free allowances on dividends and capital gains tax have been slashed. In 2023 the dividend allowance will be cut from £2,000 to £1,000. In April 2024 it will then be reduced further to £500.
The annual exempt amount for capital gains tax will be reduced from £12,300 to £6,000 in 2023. In April 2024 it will reduce further to £3,000.
National Living Wage Increased
From April next year, the National Living Wage will rise from £9.50 per hour to £10.42 per hour for over 23s. For a full time worker on minimum wage, this equates to a £1,600 pay rise annually.
Other key points announced include:
- Government support for people on means-tested benefits to help with high energy bills will remain in place, but support will reduce from April 2023
- There will be a 10% rise to the state pension, tax credits and benefits linked to September’s inflation figure of 10.1%
- The VAT threshold will remain at £85,000 until 2026
- From April 2025, electric vehicles will no longer be road tax exempt
- State pensions and means-tested benefits including universal credit will rise in line with the September inflation figure
- National Insurance Employment Allowance will remain at £5,000
- Energy firms will be hit with a windfall tax increase from 25% to 35%, extended until March 2028. Companies that generate electricity will have a 45% levy applied from January 2023 which will raise around 14 billion tax revenue next year
- Rent increases in the social housing sector are to be capped at 7% for the next financial year. This will help to save around 4 million families an average of £200 per year
- Stamp duty cuts announced in September’s mini-budget will remain in place until March 2025
- The R&D tax relief deduction rate for SMEs will be cut to 86% and the credit rate reduced to 10%. The separate R&D expenditure credit rate will increase from 13% to 20%
Our expert accountants are on-hand to answer any queries you have regarding the budget so contact us today for expert advice.