Autumn Statement 2022
When I wrote my summary of the Spring Statement in March, I don’t think I could have imagined what would follow. The then Chancellor is now Prime Minister, with a slight detour to the third female & shortest-lived holder of that office. The effects of COVID remain, whilst inflationary pressures & energy prices from the war in Ukraine, as well as national and international political turmoil, are being firmly felt in the wallets of businesses and individuals alike.
This made Jeremy Hunt’s job even more challenging that his now-boss had eight months ago, but he nevertheless sought to provide assurances for businesses and individuals across the UK.
- The Personal Allowance (the amount you earn before paying Income Tax) has been frozen at £12,570 until April 2028.
- The 45% “Additional Rate” of Income Tax is now payable from £125,140 (it was £150,000) – those earning £150,000 will now pay just over £1,200 more Income Tax per annum.
- Inheritance Tax & National Insurance rate thresholds were also frozen until April 2028.
- Local councils in England can now raise Council Tax by 3%, plus a 2% Social Care Levy (previously 1%), without a local referendum being required. Many councils are likely to use this increased allowance to overcome funding deficits and their own inflationary costs in providing public services, resulting in increased Council Tax bills.
- The tax-free allowance for dividends (recently reduced from £5,000 to £2,000) has been cut further to £1,000 in April 2023, and £500 in April 2024, affecting small businesses and the self-employed, who have used this allowance as a tax efficient means of remuneration.
- The tax-free allowance for capital gains will also be reduced, from £12,300 to £6,000 in April 2023, and then to £3,000 in 2024.
- The threshold for employer National Insurance contributions has been frozen until April 2028, albeit the Employment Allowance has also been maintained.
- Properties will be revalued for Business Rates next year, whilst rate multipliers will be frozen. The relief for retail, hospitality and leisure sectors will also be increased from 50% to 75% for up to £110,000 per business. This is likely to be a huge help to the 230,000 eligible properties as consumers tighten their spending due to the cost of living crisis.
Increases in pay, benefits and the State Pension
- The National Living Wage is set for its largest ever increase, rising from £9.50 to £10.42 per hour in April.
- The Government has re- committed to the “Triple Lock”, increasing the state pension by just over 10% from April – a £870 per annum increase.
- Working age & disability benefits will also increase in line with inflation for September (10.1%).
- For individuals, the Energy Price cap is being extended by 12 months to April 2024, but will rise to an average of £3,000 from April 2023. This equates to £500 of support per household, but nevertheless leaves energy bills exponentially higher than 12 months ago.
- The levy on oil and gas profits has also been extended until 2028, and the rate will increase from 25% to 35% with effect from 1 January. There is also a temporary 45% levy on electricity generators, which will be in effect for 2023.
What does this mean for the cost of living
Inflation is expected to be 9.1% for 2022, and 7.4% next year. The rise in the Living Wage of 9.68% is therefore helpful, but will not offset all inflationary pressures. There will also be a likely increase to Council Tax bills, and definitely to energy costs once again from April, offsetting even more of this gain.
Whilst most tax rates have not increased, reducing or freezing allowances are often called stealth taxes. This is because you either end up paying more when thresholds are reduced (as a higher rate applies to more of your earnings), or you end up being dragged into paying tax (or a higher bracket) as your pay increases faster than the thresholds do.
Whilst the Government may tout the record increase in the Living Wage, and hope for pay increases for other earners, the take-home effect will be much lower once all these measures are considered together.
What else was introduced
- Electric cars will be required to pay Road Tax from 2025, having previously been exempt.
- Numerous budgets were protected, and in some cases increased, including the Defence, Health and Social Care, Schools, capital spending and Research and Development budgets.
- The Government has re-committed to HS2 and Northern Powerhouse rail.
And in local news….
For a national statement, some announcements directly affected our local region. In particular:
- the Sizewell C nuclear power plant which is due to be built in Suffolk will proceed, with the aim of providing power for 6 million homes for 50 years; and
- there will be significant devolution to East Anglia, with a newly elected Mayor to Suffolk, and a similar deal for Norfolk to follow - we may very soon be getting our own version of Andy Street, or indeed Andy Burnham (depending on your politics).
Whilst the markets responded calmly, as in March many questions remain, with most being asked around the boardrooms and dining tables of businesses and households across the UK. Whilst these measures may yet assist the economy long-term, it appears that we must “face the storm” for some time still.
If you have any queries on how these changes might apply to you, or need advice in what are undoubtedly testing times, Leathes Prior’s Commercial Team and other departments are ready to assist. Please contact us by email or by calling 01603 610911. To keep up to date with the ongoing news, make sure to follow the Leathes Prior social pages (LinkedIn, Twitter, and Facebook).