How will the Autumn Statement affect you?
We explore the key points of the 2022 Autumn Statement and what it might mean for your income, investments, pensions and general budget.
Chancellor Jeremy Hunt underpinned his 2022 Autumn Statement with three priorities: growth, stability and public services. In the lead up, the papers speculated that the government would announce tens of billions of pounds worth of spending cuts and tax rises. Although Hunt did unveil a £55 billion package for public coffers, among his “difficult decisions” there were very few actual tax increases, and even some handouts for retirees and the NHS.
So what was in it and how might it affect you?
Last year, the income tax personal allowance and thresholds were frozen until 2026 – this has now been extended until 2028, along with the National Insurance contributions (NICs) allowance. This means that the amount you can earn tax-free will stay at £12,570 (both income and NICs) for the next five tax years.
The income tax bands are also locked, although additional rate income earners (excluding Scotland) will be affected by a reduction of the top 45% threshold from £150,000 to £125,140. For someone earning over £150,000, this adds an extra £1,243 to their income tax bill.
While allowance freezes aren’t exactly tax rises, they have the effect of increasing future tax bills by stealth, or what’s known as ‘fiscal drag’. When tax bands don’t adjust as inflation (and wages) increase, more and more people fall into the higher tax rate brackets for the first time, and everyone pays a greater proportion of tax on their income. This harvests increasingly more revenue for HMRC as your income and pensions grow over time.
Similarly, Hunt has extended the freeze on the inheritance tax thresholds for another two years, up to 2028. Stuck at £325,000 per person – the same level it’s been since 2009 – the tax-free ‘nil rate band’ allowance had already fallen well behind inflation, even before it reached double figures. And while the residential nil rate band (RNRB) provides extra tax relief when passing a main home to direct descendants, this too has been frozen. At £175,000 per person, it won’t cover the value of most UK properties today.
It's unsurprising, then, that the government are expecting to reap £1 billion more in inheritance tax by 2028. It’s expected to catch out many estates that wouldn’t have been liable for the 40% tax in previous years. Forward planning (or spending your money in your lifetime!) can help reduce this tax burden for your heirs.
Although dividend tax rates weren’t increased as some predicted, the dividends tax-free allowance will be halved to £1,000 from April 2023, then to just £500 the year after. Affecting limited company directors and investors with shares, this will cost basic rate taxpayers £87.50, higher rate taxpayers £337.50, and additional rate taxpayers £393.50 in the 2023/24 tax year.
The annual exemption for capital gains will be slashed from £12,300 to £6,000 next year, then £3,000 from April 2024. This will mean a bigger tax bill for those selling shares, second homes and other profitable assets from 2023.
Hunt honoured the ‘triple lock’ by increasing the State Pension by 10.1% next April. The triple lock means an increase in line with whichever of these measures is highest: inflation (based on September’s Consumer Prices Index (CPI)), the average increase in wages across the UK, or 2.5%. After being reduced to a ‘double lock’ last year, this is better news for retirees of State Pension age, representing around an extra £870 in your pocket next year. A review on the State Pension age increase will come out in early 2023.
There was no change to the pension lifetime allowance (LTA) – the amount you can hold in total pension benefits before attracting tax penalties. Having stopped tracking inflation in April 2021, it’s currently still fixed at £1.073 million until 2026. As pension funds increase in value, this will bring more retirees in the firing line for 25% or 55% tax when accessing pension benefits.
Energy and fuel
The energy price cap guarantee of £2,500 will increase slightly to become less generous from April 2023, meaning that a typical household will pay £3,000 in energy bills next year. However, bigger households will likely pay more than this, as the cap limits the price per unit of energy use, not the total bill. There’ll also be means-tested cost-of-living payments for the most vulnerable, plus extra support for energy efficient schemes.
One measure that wasn’t announced explicitly is a planned 23% increase in fuel duty from April, set to add an extra 12p per litre to the price of petrol and diesel. This sits in the Office for Budget Responsibility (OBR) report but was left unmentioned by Hunt, who has since confirmed “we'll make a decision on that at the next budget in the spring”.
Other key measures
- Electric car drivers will no longer be exempt from vehicle excise duty from 2025.
- The reduction in stamp duty thresholds is set to be reversed in 2025.
- A £13.6 billion package of business rates support has been pledged.
- Means-tested benefits will rise by 10.1% from April.
- The National Living Wage will rise to £10.42 from April, but no increase has been specified for public sector pay.
- Windfall tax on UK oil and gas companies will jump from 25% to 35%, plus a new temporary 45% tax for renewable electricity companies.
- Government spending to increase in real terms (but at a slower rate) every year for the next five years, including £3.3 billion for the NHS over the next two years.
The road ahead
The Autumn Statement followed hard on the heels of the news that UK inflation had hit a 41-year high of 11.1%. This hasn’t come out of nowhere, but it does mean that everyone will be feeling the squeeze as everyday living gets more expensive.
Hunt confirmed that the UK is already in a recession, but that we’re not alone, with the IMF expecting a third of the world to follow suit in the coming months. Hunt claims that his plan will produce a ”shallower downturn” in the UK and “help inflation to fall sharply from the middle of next year”.
These are challenging times, but there are some things you can do to ease the pressure, like making sure you take advantage of all available tax allowances and reliefs and reviewing your spending (especially energy usage). If you’d like a more thorough financial planning review to help make the most of your savings, pensions and investments, contact us.