The UK chancellor, Jeremy Hunt, has unveiled an Autumn Statement that ushers in another era of austerity in the United Kingdom.
A step change in the policies outlined in Truss’s doomed mini-budget, Hunt was expected to set out tax increases and spending cuts that will increase the confidence of financial markets, at the expense of household spending power and government services.
Hunt confirmed the rumours and speculation in his delivery on Thursday.
“In a bid to keep markets on side, the Government had been leakier than a sieve in the run-up to today’s announcement, meaning that there were few surprises,” said Laura Suter, head of personal finance at AJ Bell.
While confidence in the government’s finances may have been restored, the OBR’s forecast of 4.9% unemployment in 2024 highlighted the impact of today’s measures on economic growth. The OBR predict the UK economy will shrink 1.4% in 2023.
The FTSE 100 fell in an initial market reaction and the pound sank against the dollar. Gilt yields were creeping higher in the wake of the announcement.
“The broad take is that both gilts and the pound have staged a meaningful recovery in the first few weeks of the Sunak government. Today’s announcement of the Autumn Statement, which is fiscally prudent but nevertheless paints a bleak picture of the state of the UK economy, gives markets an excuse to take a little bit off the table,” said Mike Owens, Senior Sales Trader at Saxo UK.
Tax
The Income tax personal allowance will be frozen at £12,570 until the end of the 2027-28 tax year. This isn’t a tax increase as such, but it will be a kick in the teeth for lower income earners struggling with soaring inflation.
A key personal tax change was the lowering of the threshold for the top rate of tax to £125,140 from £150,000.
“Two months ago the wealthiest were celebrating the abolishment of the additional rate of tax, they are now being forced to share in the pain of tax hikes, with the threshold at which that 45% rate kicks in being lowered from £150,000 to £125,140. The move will cost someone on £150,000 almost £1,250 a year extra in tax – putting an extra 2% on their total tax bill,” said Laura Suter.
The Capital Gains Tax (CGT) allowance is set to fall from £12,300 to £6,000 next year – and then to £3,000 from April 2024.
The Inheritance Tax threshold will be frozen for another two years at £325,000 with a further residential nil rate band at £175,000.
Energy Bills
Help on energy bills is providing many households a lifeline. But the current £2,500 energy price guarantee scheme is set to end in April and be replaced with £3,000.
“The new energy support package will come as something of a relief for average earners, who were worried they might be left out in the cold. The new package, from April, will keep bills at £3,000 for average users – protecting them from a rise to as much as £3,700,” said Sarah Coles, senior personal finance analyst, Hargreaves Lansdown.
“This still leaves them with a horrible mountain to climb. In March this year we were paying an average of £1,277 on our energy bills, so we’ll have to find almost two and a half times more cash to pay our bills within 13 months. The fact that this comes on top of so many other price rises means life is going to get even tougher next spring.”
To help with the government’s support for energy bills, Hunt introduced a new 35% windfall tax rate and oil and gas, an increase from 25%.
The windfall tax has been extended to low-carbon electricity generators which have been hit with a 45% levy. A 40% levy had been expected.
The combination of the changes on energy bills culminated in a 4.5% rally in Centrica shares, while SSE edged 2% higher. FTSE 250 Drax shot up 7%.
Stamp Duty
The changes to stamp-duty announced in the September’s mini-budget will be reversed in 2025. The nil rate threshold will be cut from £250,000 to £125,000 while first time buyers nil rate will fall to £300,000, from £425,000.
“This could end up providing a useful short-term boost to the market. By moving from an open-ended stamp duty cut to a limited opportunity, it could hurry through more sales, and help to keep the market ticking over until March 2025, when there’s a reasonable chance we will be out the other side of the recession,” said Sarah Coles, senior personal finance analyst, Hargreaves Lansdown.
Housebuilder shares were little changed on the news.
Pensions
The pensions triple lock will be reinstated with pensions rising in line September’s 10.1% inflation.
“Retirees will be reassured by the Chancellor’s commitment to the triple lock. This will bring much-needed respite to retirees who rely heavily on income from the State Pension to get by,” said Joanne Segars, Chair of Trustees at NOW: Pensions.
“Without today’s action, there was a possibility pensions would have just risen in line with average earnings, which rose by only 5.7% in the year to September, excluding bonuses. This would have left pensioners at a significant financial disadvantage, with inflation now sitting at 11.1%.
