Autumn Statement Commentary
17 NOVEMBER 2022
So, it wasn’t a Budget, then. It was an Autumn Statement.
After several weeks of being told we were heading into Chancellor of the Exchequer Jeremy Hunt’s first Budget, the branding was changed to the latter and, to be fair, it felt and came across more as a statement.
With the population already primed for bad news ever since Kwasi Kwarteng’s mini-budget was effectively consigned to history, Hunt’s delivery was measured and, to a degree, sombre with only some late points-scoring making for a more upbeat ending – including praise for Tees Valley Mayor Ben Houchen as part of his announcement of further elected mayoral areas, including a mayoral devolution deal with local authorities “in the North East of England” under a Levelling Up Fund second round.
It’s only an observation at this early stage in Hunt’s Chancellorship but one got the impression that he might struggle to increase his mode of delivery and decibels but, one might argue, all other Chancellors have had their moments and Hunt will hope his will still be to come.
Hunt was quick off the mark with the warning that the “black hole” would be plugged by tax increases of £26bn and spending cuts amounting to £30bn whilst also saying that his actions and the statement would make for a “shallower downturn” and mean a plan for “stability, growth and public services”.
Early signs for Hunt weren’t encouraging with the FTSE 100 down before rallying to close 4.65 points down on the day and the Pound levelling out at its 1.19 opening exchange rate with the US Dollar. There was no implosion though a la minibudget.
The current inflationary pressure, Hunt said, was an international problem but the Office for Budget Responsibility (OBR) was forecasting that the inflation rate was set to be 9.1% this year and 7.4% next year.
Having concentrated on the tax rises and public spending, Hunt went on to announce support for health and social care and capital projects including HS2 to Manchester; Northern Powerhouse Rail and the Sizewell C nuclear power station, none of which can be said to benefit our area.
There was the predicted/leaked good news that benefits; pension credit and the state pension would all rise in line with the 10.1% inflation rate.
Responding to concerns about R&D tax relief fraud, which is a HM Revenue and Customs’ enquiry target area, Hunt cut from 17 November the SME scheme deduction rate to 86% and the credit rate to 10% but there was an increase in the expenditure credit from 13% to 20%.
The Energy Price Guarantee will continue for 12 months from April 2023, the cap increasing by £500 to £3,000. The Energy Profits Levy on oil and gas companies will increase from 25% to 35% and remain in place to March 2028 with a new 45% levy introduced on electricity generators.
With an OBR forecast that half of new cars by 2025 will be electric, Hunt announced that from 2025 they would no longer be exempt from Vehicle Excise Duty but would continue to be subject to lower company tax rates.
Taking a step backwards to the tax announcements, these can be summarised thus:
- The income tax personal allowance and 40% higher rate threshold already frozen to 2026 will both be extended to April 2028
- The 45% additional higher rate of tax will now kick in from April 2023 on income over £125,140 instead of £150,000
- The dividend allowance, currently giving a tax exemption on the first £2,000 of dividends will be cut to £1,000 from April 2013 and then to £500 from April 2024
- The Capital Gains Tax Annual Exemption will reduce from £12,300 to £6,000 from April 2023 and then £3,000 from April 2024
- National Insurance and Inheritance Tax thresholds will also be frozen for a further two years to April 2028
- The Employer’s National Insurance Employment Allowance will continue at its new, higher level of £5,000 until April 2028
- The VAT registration threshold will be frozen at £85,000 until March 2026
- To help with a predicted slowing down of the housing market, the Stamp Duty cuts announced in the mini-budget will remain until 31 March 2025
- There will be a business property revaluation in April 2023 but with support for those businesses facing higher bills; protection against the effect of inflation and immediate relief for those businesses whose bills will fall
What’s the verdict then?
Well, Hunt, by not increasing tax and National Insurance rates, has adhered to the last Conservative manifesto but the “freezing” methodology instead has been extended by a further two years to April 2028 and which will drag many into paying tax and paying more tax whilst struggling with the increased cost of living.
In the circumstances, it was no surprise that Rishi Sunak’s and Kwarteng’s 1% cut in the basic rate of tax remained out of bounds.
Reforms to the dividend allowance and Capital Gains Tax Annual Exemption cuts reaffirms that some reforms were pending and the reductions do suggest a limited shelf-life for them.
Whilst recouping money from spending cuts and tax increases to fill that “black hole”, Hunt was also able to increase funding for the NHS; education and defence. In happier times such action would have been trumpeted and yet it all seemed so hollow.
With so much linked to an April 2028 “end date” it remains to be seen what subsequent Budgets and statements will contain and, of course, there will be a General Election before then.
Commentary from Ian Kelly, Tax Partner – email email@example.com