On the 17th November 2022, Prime Minister Rishi Sunak and Chancellor Jeremy Hunt outlined their financial strategy in this year’s autumn statement. The statement, which is usually seen as playing second fiddle to the main budget announcement, has this year taken centre stage in terms of significance in light of the spiralling cost of living crisis and emerging recession.
These announcements have been made whilst the Office for Budget Responsibility judges UK to be in recession, meaning the economy has slowed for two quarters in a row. Growth for this year has been predicted at 4.2% overall, but size of the economy will shrink by 1.4% in 2023.
The UK’s inflation rate is predicted to be 9.1% this, with a slight fall to 7.4% next year- a rate which will still put strain on personal and business finances. Unemployment rates are also expected to see an increase next year, up from 3.6% to 4.9% by 2024.
He has revealed tax rises and spending cuts worth billions of pounds aimed at mending the nation's finances. How will this impact payroll and the wages that employees are taking home?
In the Chancellor’s own words “High inflation is the enemy of stability.” The first weapon in Jeremy Hunt’s arsenal appears to be increases in tax rates. Although the Chancellor wishes to avoid wholesale increase to rates, he has conceded that the current circumstances demand action be taken with “Those who have more, being expected to contribute more.” In his own words.
In reality, this means the threshold for the highest rate of income tax will decrease from £150,000 to £125,140. This equates to an increase of roughly £1200 per annum in tax for those earning £150,000 and above.
The income tax personal allowance has been confirmed to be frozen until 2028. Rates were already locked until 2026 and this means that tax bands will stay the same, even as people’s pay increases. In reality, this means the proportion of earnings that are spent on tax increases as people move into higher tax brackets.
National living wage increase
The Chancellor has today confirmed an increase to the national living wage from £9.50 an hour for over 23s to £10.42 from April next year. Roughly, this represents an annual pay rise worth over £1,600 to a full time worker.
The National Living Wage goes up every April, boosting the pay of around about two million people. But the new rates are announced months in advance, to allow firms to prepare for the change.
Universal credit and benefits
In his statement, the Chancellor reaffirmed his commitment to helping people raise their income and become financially independent through finding work. In accordance with these plans, 600,000 claimants on Universal Credit will be asked to meet with work coaches “so they can get the support they need to increase their earnings.”
The Chancellor also announced that £280 million will be invested in helping the Department of Work and Pensions tackle incidences of benefit fraud.
Much criticism has been levelled at perceived profiteering by the energy sector- reaping dividends even as costs soar for the general public. In today’s statement, the Chancellor announced an increase in windfall tax rates- Oil and gas companies' tax will increase from 65% to 75% of profits on UK operations - till March 2028 - extended from December 2025. There will also be a 40% tax on profits of older renewable and nuclear electricity generation.
Rising energy costs have been a dominant concern for many people and in today’s statement, the Chancellor has announced that although government help for bills will be extended, measures will be less generous than previously proposed.
A household using a typical amount of gas and electricity will pay £3,000 annually, up from £2,500, as the Energy Price Guarantee rises. The scheme will run for 12 months from April.
Pensions and benefits
Chancellor Hunt announced that pensions are set to rise in line with inflation, increasing to 10.1% in April, in a move which he has touted as the government reaffirming their triple lock state pensions pledge.
Means-tested benefits, including Universal Credit, will also rise in line with September’s inflation figure of 10.1% from next April, in-keeping with previous promises by Rishi Sunak when he was Chancellor.
In the Chancellor’s own words: "On average, a family on Universal Credit will benefit next year by around £600. And to increase the number of households who can benefit from this decision I will also increase the benefit cap with inflation next year.”
Some benefits such as disability allowance are already mandated by law to increase annually in line with inflation.
The Chancellor has also announced targeted support with the cost of living for those on low incomes, disability benefits and pensioners.
Additional payments of £900 will be paid to those on means-tested benefits, £300 to pensioner households and £150 to people on disability benefits.
If you’d like to learn more about the announcements in today’s autumn statement, visit Autumn Statement 2022 - GOV.UK (www.gov.uk)