Autumn statement 2022
Written by Ray Coman
Jeremy Hunt has been brought into his role during a cost-of-living, war in Ukraine, high inflation and soaring energy prices. The Autumn statement 2022 which was delivered about 11:30 today outlined the government’s plan to cut spending and increase taxes.
Cut on capital allowance threshold
Dividend allowance to be dropped
Freeze to employer NIC threshold
Cut to research and development tax relief
Vehicle exercise duty exemption to end
Additional rate tax
The threshold at which taxpayers start to pay the additional rate tax of 45% will reduce from £150,000 to £125,140. Inflation, forecast by the Office for Budget Responsibility at an average 9.1% this year and 7.4% next year, will further increase the number with income over the £125,140 rate. The additional rate tax threshold will coincide with the level at which the personal allowance is fully abated.
Freezing of allowances
Fiscal drag explains the erosion of tax threshold by inflation. Given the sharp rates of inflation which prevail, and which are forecast, a suspension of allowances at their current rates is a form of tax rise. The following will frozen until at least April 2026/27:
The personal allowance, of £12,570
National insurance upper earnings limit also £50,270.
The higher rate tax threshold, currently £50,270
An inheritance tax nil rate band of £325,000 (the rate has been in force since 2009)
Pension lifetime allowance of £1,073,100
Cut on capital allowance threshold
The limit on which a taxpayer becomes liable to capital gains tax is set to decrease to £6,000 from 6 April 2023 and again to £3,000 in April 2024. By way of recap, the rate of capital gains tax on residential property is 18% to the extent that an individual I a basic rate taxpayer and 28% thereafter. The equivalent rates on other types of capital gains, for instance on shares, cryptocurrency and other investments is 10% and 20% respectively. Evidently, the UK’s capital allowance system will remain more generous than many developed nations including Germany, Ireland, Canada and France
Dividend allowance to be dropped
Coinciding with the capital allowance cut is a lowering of the dividend allowance to £1,000 from 6 April 2023 and again to £500 in April 2024.
Freeze to employer NIC threshold
Small businesses are not liable for the first £5,000 of employer’s national insurance threshold. The Chancellor committed to hold the allowance at this higher level. Evidently, this measure will keep 40% of all business exempt from employer’s NIC until March 2026.
Cut to research and development tax relief
In response to widespread abuse of research and development corporation tax breaks, the Chancellor revealed a reduction in the rates. The R&D enhanced expenditure relief will fall from 130% to 86% and the R&D tax credit from 14.5% to 10%
Stamp duty sunset
The previous chancellor announced a generous increase in the level of stamp duty as part of a growth plan. The cut in stamp duty will now be temporary and is set to expire on 31 March 2025. The rise announced in the growth plan earlier this year increased the threshold from £125k to £250k.
Business rates
In a bid to soften the impact of tax rises on smaller businesses, the government will proceed with property revaluation which are expected to reduce or eliminate business rates for a larger port of restaurants, pubs, retailers and other commercial premises. The chancellor estimates the revaluations will benefit 700,000 businesses.
Vehicle exercise duty exemption to end
The government forecasts that over half of new vehicles by 2025 will be electric. From April 2025, electric vehicles will no longer be exempt from vehicle excise duty
Windfall taxes
As so called ‘made in Russia energy crisis’ has led to a dramatic rise in wholesale gas and electricity. Along with a plan to help Britain achieve greater energy independence was a set of taxes on energy giants who have profited most from this ‘windfall’ unexpected increases in energy prices. Increase Energy profits levy from 25% to 35% from 1 January to March 2028, and a temporary levy of 45% on electricity generators was announced. In recognition of the cyclical nature of energy business, it was also acknowledged that these taxes are likely to be temporary in nature.
Public spending
The government set out its commitment to reducing inflation, mortgage rates, unemployment and the severity of the recession. It was confirmed however that while public spending will increase, it will be a bow inflation increase. Unemployment has not returned to pre-pandemic levels. Claimants of universal credit which remain at approximately 600,000 will be required to meet with a work-coach.
The UK maintains the second highest spending on Ukraine after the US.
Summary
The Autumn Statement laid out a plan to tackle cost of living crisis through countering inflation. High inflation, in the chancellor’s words, is the enemy of stability, eroding inflation and leading to industrial unrest. A measured response to which recognises the increase pressure on public finances will places less demand on government borrowing and thereby protect the credibility of the UK economy through these troubled times.
