In his Autumn Statement, Chancellor of the Exchequer Jeremy Hunt unveiled a series of measures designed to shore up the UK’s finances. Against a backdrop of intensifying inflationary pressures and rising interest rates, UK households face their most dramatic decline in living standards since records began in 1956.
- The UK is already in recession
- The additional rate threshold for income tax was cut
- Energy bills are set to increase
In his Autumn Statement , Chancellor of the Exchequer Jeremy Hunt unveiled a series of measures designed to shore up the UK’s finances. Against a backdrop of intensifying inflationary pressures and rising interest rates, UK households face their most dramatic decline in living standards since records began in 1956. The Office for Budget Responsibility (OBR) warned that household incomes – adjusted for inflation – were set to drop by 7.1% and are not expected to recover to pre-pandemic levels for at least six years.
“UK households face their most dramatic decline in living standards since records began in 1956”
The UK is already in recession … and the outlook is bleak
The UK is already in recession according to the OBR, which expects the economy to contract by 1.4% next year, and to grow by 1.3%, 2.6% and 2.7% over the subsequent three years. The rate of unemployment is predicted to rise from 3.6% to reach 4.9% in 2024, and the rate of inflation – running at 11.1% year on year in October – is forecast to be 9.1% this year and 7.4% in 2023.
“You cannot borrow your way to growth”
The Chancellor confirmed two new fiscal rules in his Autumn Statement. The first was that underlying debt must fall as a percentage of GDP by the fifth year of a rolling five-year period. The second was that public sector borrowing must be below 3% of GDP over the same period. During the current fiscal year, the UK is predicted to borrow 7.1% of GDP, falling to 5.5% next year, and then to 2.4% by 2027-28. Meanwhile, underlying debt as a percentage of GDP is set to decline from a peak of 97.6% of GDP in 2025-26 to 97.3% in 2027-28.
Stealth taxes
The income tax personal allowance and the threshold at which earners start to pay the basic and higher rate were frozen until April 2028. The thresholds for National Insurance contributions and inheritance tax were also frozen until April 2028, and the threshold at which people start to pay the additional rate of 50% was reduced from £150,000 to £125,140. The tax-free allowance for dividend income will be cut from £2,000 to £1,000 in April 2023, and cut again to £500 in April 2024. The capital gains tax (CGT) allowance will be reduced from £12,300 to £6,000 in April 2023, falling to £3,000 in April 2024.
Triple lock remains in place
State pension payments, means-tested and disability benefits were increased by 10.1%, in line with the rate of consumer price inflation in September. Elsewhere, the hourly minimum wage for individuals aged over 23 was raised to £10.42 from April 2023.
Rising energy bills and windfall taxes
The energy price cap for households will be extended until April 2024, but the cap on average household energy bills will be raised from £2,500 to £3,000 per year. Households on means-tested benefits will receive an additional support payment of £900 next year. Pensioner households will receive payments of £300, while those on disability benefit will receive £150. The windfall tax imposed on the profits of energy firms was raised from 25% to 35% and will remain in place until March 2028. The Government will also levy a temporary tax of 45% on electricity generators from January 2023.
Steps towards business rate reform
Business properties are set to be revalued to reflect higher property values, but the Government will provide additional support for businesses facing increased bills. There will be also further support for businesses in the retail, hospitality and leisure sectors. In response, the British Retail Consortium (BRC) hailed the Government’s moves towards reforming business rates, commenting: “This represents the first step towards a more fundamental reform of the broken business rates system”, but also warned that high inflation remains “a major threat to the UK economy”.
Government raises spending on health and education
The Government increased spending on the NHS by £3.3 billion per year for the next two years, and on schools by £2.3 billion per year. The devolved administrations in Wales, Scotland and Northern Ireland will receive additional funding during the next two years. Defence spending was kept at NATO’s minimum target of 2% of GDP. Spending on overseas aid was maintained at 0.5% for the next five years, which is below the 0.7% target. Overall, the pace of growth in scheduled public spending is set to slow from 2025.
A mixed reaction from business groups
Business groups’ responses to the Autumn Statement were mixed. The Confederation of British Industry (CBI) commented: “The Chancellor deserves credit for delivering stability, as well as protecting the most vulnerable, but businesses will think there’s more to be done on growth”. Elsewhere, the British Chambers of Commerce (BCC) gave some of the measures a cautious welcome, but warned: “In the teeth of a recession, this statement will not increase business confidence”.
