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Chancellor Jeremy Hunt has announced a raft of measures to help “stabilise” the UK economy and reduce inflation, with tax cuts and spending cuts totalling £55bn in the Autumn statement.
As part of the new measures, Hunt confirmed that tax as a percentage of GDP will rise by over 1% over the next five years.
He also unveiled two new fiscal rules that the government will operate by, including that underlying debt must fall by the fifth year of a rolling five-year period and that, during this period, public borrowing must remain below 3% of GDP.
Today’s announcement represents another down payment following the reversal of the corporation tax cut announced on Friday 14 October by the prime minister.
To help meet these targets Hunt confirmed that the income tax personal allowance threshold will be frozen until 2028, meaning many people will pay more in tax as wages increase but the current tax bands remain the same.
In addition, he confirmed the threshold at which the 45p rate on income tax becomes payable will be reduced from £150,000 to £125,140, meaning those earning over £150,000 will now pay an extra £1,200 a year.
Meanwhile, the annual exempt amount for capital gains tax will be cut from £12,300 to £6,000 next year, and later to £3,000 from April 2024.
The energy profits levy is also set to be raised from 25% to 35% from 1 January to March 2028, with the chancellor adding he had “no objection to windfall taxes if they are genuinely about windfall profits caused by unexpected increases in energy prices”. In addition, a temporary 45% levy on electricity generators will be introduced.
To help households with rising energy costs the government has announced that from April it will continue the Energy Price Guarantee for a further 12 months at a higher level of £3,000 per year for the average household.
The National Living Wage is also set to rise from £9.50 an hour for over-23s to £10.42 from April next year. Meanwhile, those on means-tested benefits, including Universal Credit, and pensions are set to see an increase in line with inflation of 10.1%.
Hunt also reversed several tax measures set out in the Growth Plan, with the basic rate of income tax to remain at 20% until economic conditions allow for it to be cut, while IR35 and dividend tax rate reforms are no longer going ahead.
Among the tax policies not taken forward, cutting dividends tax by 1.25%, introducing a VAT-free shopping scheme and freezing alcohol duty rates are all included.
It comes as the new chancellor said the government’s priorities were “stability, growth and public services”, adding that “global factors” were the primary cause of inflation.
He added that the OBR said the UK is now in recession, and the economy will shrink by 1.4% in 2023, followed by growth of 1.3% in 2024, 2.6% in 2025 and 2.7% in 2026.
Other measures announced in the budget include:
- An extra £2.3bn for schools
- A £3.3bn increase the NHS budget over the next two years
- A £2.8bn funding increase for the social care sector
- From April 2025, electric cars will no longer be exempt from Vehicle Excise Duty
- Defence budget to remain at least 2% of GDP
- Stamp duty cut to remain until 2025
- Public funding for R&D increased to £20bn by 2024/5
