The Young Fabians Economy and Finance Network give their response to the Chancellor's Autumn Statement of Thursday 17th November 2022.
What is the Autumn Statement?
In what would usually be referred to as an ‘Autumn Budget’, this year's softer sounding Autumn Statement, delivered by Chancellor Jeremy Hunt, has earned its name in the hope to calm financial markets in the wake of a calamitous mini-budget delivered by Kwasi Kwarteng this September.
With a normal Budget set by the Treasury typically consisting of changes in tax legislation and welfare policies for the upcoming UK fiscal year, the sheer multitude of tax increases for millions across the country announced by Jeremy Hunt a few weeks ago gives his Autumn Statement the same, if not more economic impact than Budgets gone by.
What were some of the key announcements?
- Income tax thresholds - The personal allowance has remained frozen at £12,570, and the higher-rate threshold in which you’d be liable for a 40% tax rate has also remained frozen at £50,270, in both cases until April 2028.
- Additional rate of income tax (ART) - The additional rate threshold will be lowered from £150,000 to £125,140 from 6 April 2023.
- Dividend Allowance - The dividend allowance will be reduced from £2,000 to £1,000 beginning from April 2023, and reduced further to £500 from April 2024.
- National insurance thresholds - the main NI thresholds will remain frozen until April 2028.
- Inheritance Tax nil rate bands - The nil-rate band will remain frozen at £325,000, the residence nil-rate at £175,000, and the residence nil-rate band taper will remain at £2 million.
- Capital gains annual exempt amount - A reduction in the annual exempt amount from £12,300 to £6,000 in April 2023, and a further reduction to £3000 from April 2024.
- Stamp Duty Land Tax (SDLT) - The increases to the SDLT nil-rate thresholds, including for first-time buyers, announced in The Growth Plan remain only until March 2025, after which they will revert back to their previous levels.
- Pensions triple lock - The triple lock has been protected; from April 2023, the State pension will increase in line with inflation
- Corporation tax - The rate of corporation tax will increase from April 2023 to 25% from the current 19% rate, as mentioned previously.
- Investment zones - The government will modify the areas which qualify as an ‘investment zone’, which benefit from tax and regulatory incentives to drive economic growth.
- R&D tax credit reform - For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%, the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%. This is part of wider efforts to create one streamlined scheme, retarget taxpayer support and reduce cases of fraud.
- Energy Profits Levy (EPL) and Investment Allowance - The EPL rate will rise by 10 percentage points to 35%, with the investment allowance being reduced to 29% for all investment expenditure other than decarbonisation expenditure.
- Electricity Generator Levy (EGL) - A new, temporary 45% Electricity Generator Levy will be applied on the extraordinary returns being made by electricity generators.
- Banking Corporation Tax Surcharge - The Bank Corporation Tax Surcharge will reduce from 8% to 3%, as a consequence of the planned Corporation tax rise. This will apply to banks making profits of over £100 million.
- National Living Wage (NLW) - From 1 April 2023, the government will increase the National Living Wage (NLW) by 9.7% to £10.42 an hour, for those aged 23 and over.
The full announcements can be found on GOV.UK.
YF Economy & Finance response:
As we enter the dawn of the ‘new era of higher taxation’, as coined by the IFS’s Paul Johnson, we can’t help but simply wonder how we’ve reached this point.
Simply put, the UK economy has mutated into a national and global embarrassment. Our country, having borne the brunt of the economic shock caused by the pandemic, approaches the new year constrained by a trio of stagnation, high inflation and a job market exodus, making it a nigh-on impossible task for an Autumn Statement to tackle all three.
Low growth has underpinned our sluggish economy for the last decade, even if Jeremy Hunt awkwardly tries to maintain that the UK’s recession is ‘made in Russia’. The fact that it was Hunt himself who formed part of the coalition government, overseeing the socio-economic destruction of Britain as we tried to recover from the financial crisis, adds to an overflowing bowl of Tory irony that floods our politics.
The Chancellor had acknowledged that we are in a recession over the despatch box, confirming The Office for Budget Responsibility (OBR) forecasts that showed the economy will contract by 1.4% in 2023. One of the more disappointing announcements made was the fact that the SME research and development tax credit deduction will be reduced from 130% to 86%, with the SME credit rate being reduced to 10%. Given small businesses are the backbone of the UK economy, snatching away their economic incentive to drive innovation and growth seems absurd, and one can’t help but simply wonder whether next year’s GDP contraction will be compounded by this change.
That wasn’t the only tax change announced, with the Chancellor setting in stone a wave of freezes on tax thresholds and deductions on allowances, intending to use fiscal drag (where wage growth pulls taxpayers into higher brackets) to shrink inflation (currently standing at 10.7%) and plug the £55 billion ‘fiscal hole’ in our finances. Our overall tax burden as a share of the GDP looks to stand at 37.1% in 2027-28 according to the OBR, our highest level for more than 70 years. Many are set to fall into higher income tax brackets as wages rise, and many more are set to qualify for higher NI contributions. Given that it is ordinary working people across the country that drive our economy, it is little wonder that the fact they’ll pay the price will consequently lead to us standing as the second weakest performer among G20 economies in 2023, according to figures released by the OECD.
While many economies around the world are similarly imposing fiscal constraint in the hopes to curb inflation and shrink their post-covid public debt, it must be noted that the Conservatives, long priding themselves as the party of financial responsibility, have so erroneously managed our economy to such an extent that it has culminated in a new, regressive tax system that will hit working people the hardest. Supply-driven inflation due to the post-Covid economic restart and Putin’s abhorrent war would’ve been troublesome for many countries, but inflation measures higher in the UK due to our inability to wean ourselves of fossil fuels, as well as our laissez-faire approach to privatised energy firms running away into the sunset with windfall profits, all while consumers bear the cost. Although the Energy Profits Levy rise, along with the Electricity Generator Levy temporary windfall tax (a Labour idea!) announced by Jeremy Hunt will go some way to address some of the deeper-rooted problems that lie within the energy sector, it is clear more change is needed. The government's announcement that electric cars would lose their vehicle excise duty (VED) exemption from April 2025 was another concerning announcement made - potentially disincentivizing motorists looking to make the greener choice.
The calamity that was Trussonomics and Kwasi Kwarteng’s mini-budget have had an important part to play too. Hunt’s insistence on being perceived as a ‘competent’ and ‘responsible’ Chancellor has had a significant role in the shaping, as well as the delivery, of the Autumn Statement, in the hope of reassuring investors globally that British assets lie safe in their hands. This was evident in the fact Hunt was very clearly in lockstep with independent fiscal watchdogs such as the OBR when attempting to explain the veracity of his announcements. The pound had faced an unprecedented sell off in the wake of the mini-budget delivered in September, causing a currency devaluation crisis not seen in decades. Responsible public debt management and fiscal conservatism has seemed to have somewhat returned, contributing to economic stability, although the average rates of fixed rate mortgages have been slow to edge down from their peaks of 6% in October.
The protection of the Pensions triple lock, as well as the rise to the National Living Wage, were announcements that were jeered on by Tory backbenchers in an attempt to try and apply a positive spin to what was a disappointing Autumn Statement. Given the opportunity for bold action to make those with the broadest shoulders pay their fair share in our economic recovery, it is abundantly clear that the Tories have been gutless. Largely due to the regressive announcements made by Jeremy Hunt over the despatch box, the OBR forecasts that living standards are set to plummet with real household incomes for millions set to fall by 7% over the next 18 months, the biggest two-year fall in living standards in the UK since records began in 1950. How dystopian.
This post was authored by Connor Escudero, on behalf of the Young Fabians Economy and Finance Network.
If you would like to learn more about the Young Fabians Economy and Finance Network please reach out to us via our email address: [email protected].