What does Jeremy Hunt's Autumn Statement mean for me?
Jeremy Hunt has announced his Autumn Statement. Here's everything you need to know about tax rises, public spending cuts, a windfall tax and what it all means for your wallet
Jeremy Hunt. Image: Flickr/ Department for Digital, Culture, Media and Sport.
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Jeremy Hunt has announced his Autumn Statement – a plan which he claims will “tackle the cost of living crisis and rebuild the economy”.
Tax hikes, higher energy bills and cuts to public spending are all part of the chancellor’s budget which will have significant impacts.
According to a report from the OBR, real household disposable income per person will fall more than 7 per cent over next two years – which is the biggest fall in records.
Even before Liz Truss’s “disastrous” economic policy cost the government billions, the UK was facing significant financial turmoil with inflation rates not seen in decades. The cost of living crisis is leaving people struggling to survive, with millions of people facing poverty in the coming months.
Hunt promised to protect the vulnerable in his statement, saying that “to be British is to be compassionate”. There will be targeted support for low-income families, with cost of living payments and increased benefits.
But campaigners are already warning that the budget will not go far enough to support the poorest people, as the costs of essentials like food and energy bills continue to rise at astronomical rates.
The campaign group Enough is Enough tweeted: “The Tories crashed our economy, starved our public services and siphoned off pandemic cash to the wealthy and powerful. Now, they are making hungry children pay for their mistakes. This is not a ‘compassionate’ budget. This is the budget of a broken economy.”
We break down what the Autumn Statement means for you depending on the size of your pay packet.
Low-income earners and benefits recipients
The good news
Benefits and pensions will rise in line with inflation
It’s the good news that campaigners have long called for. Rishi Sunak is sticking to his promise and raising benefits in line with inflation with an increase of 10.1 per cent. The government will also increase the benefit cap in line with inflation.
Inflation is often higher than average for people on lower incomes, however, as things like food and energy bills take up a big share of their spending. New inflation figures announced on Thursday found food was up 16 per cent and household bills an eye-watering 25 per cent on last year.
Experts have warned the increases will not be enough to support low-income people. Heidi Karjalainen, a research economist at the Institute for Fiscal Studies, explained this will leave people 6 per cent worse off than they were before the pandemic. That’s equivalent to around £500 per year for the average out-of-work claimant.
The government will also protect the pensions triple lock, meaning pensions will also rise in line with inflation.
One-off payments to help vulnerable people with energy bills
The government will provide additional cost of living payments for vulnerable people, Hunt revealed in the Autumn Statement. It will be £900 for people on means-tested benefits, £300 for pensioners, and £150 for people receiving disability benefits.
Extension to the household support fund
There will be a 12-month extension to the household support fund of £1billion. This means that councils will be able to distribute support to the most vulnerable.
Rise in national living wage
Hunt confirmed that the national living wage will be increased by 9.7 per cent from £9.50 an hour for over-23s to £10.42 from April next year. This represents an annual pay rise worth over £1,600 to a full-time worker, according to Hunt.
However, as with benefits, the increase doesn’t make up for the rising costs many people on this kind of wage are seeing.
The bad news
Rise in social rents less than inflation
In the Autumn Statement, Hunt announced that social housing tenants would be partially protected from the cost of living crisis through a 7 per cent cap on rent increases. However, that cap could have been 3 per cent.
Social housing rents are regulated centrally by the government and every year it sets the maximum rate that housing associations can raise rent by every April.
That figure is usually set using the consumer price inflation rate in the autumn before plus an extra 1 per cent. This year that posed a problem: with inflation hitting 11.1 per cent this week that meant tenants were in line for an increase in rents of 12.1 per cent.
That figure would have dwarfed the 4.1 per cent increase recorded in April this year and likely would have forced many tenants into rent arrears.
In recent months the government has been consulting with tenants, housing associations and other stakeholders on the rate at which increases should be capped with the option of a 3, 5 or 7 per cent rise. Hunt has opted for the latter.
A freeze on income tax and national insurance thresholds
The government is planning to extend the freeze on income tax and national insurance thresholds until April 2028, meaning people pay a bigger share of tax when they get pay rises.
It means that if your wages rise with inflation, a higher proportion of your income is paid in tax. So that cost of living pay rise you got from your employer? It might not mean quite as much extra cash as you thought it would each month. Chancellors like this tactic because you’re less likely to notice the impact on your wallet – it raises government revenue without explicitly raising tax rates.
The proportion of income going to the taxman is likely to be among the highest in at least 70 years, the BBC reports.
Allowing councils to increase council tax by 5 per cent
Plans are to let town halls raise the levy by 3 per cent, without a local referendum, and increase part of the adult social care element of council tax by 2 per cent.
Most councils are likely to take advantage of this this means the average household is expected to pay £2,000 a year.
Average energy bills will soar to £3,000
All households will see average energy bills rising by a fifth to £3,000 a year as the energy price cap is set to rise from April 2023. It means the average household will be paying £500 more a year on energy bills (and more than £1,500 more than they were at the beginning of this year).
Cuts to public spending
In the Autumn Statement, Hunt said the government will grow public spending at a slower rate than economic growth, meaning departments will have to make “adjustments”. There will be spending squeezes on government departments.
Cuts to public spending mean councils and public services cannot deliver as much support vulnerable people need. Shaun Davies, senior vice chair of the Local Government Association, told the Big Issue in October: “Public services have not just been cut to the bone, they have been cut to the bone marrow.”
In October 2020, the Local Government Association said an extra £10bn was needed in public spending every year to help councils plug their funding gaps and improve their services – including £1.9bn for homelessness alone.
Saima Ashraf, deputy council leader for one of the most deprived neighbourhoods in the country Barking and Dagenham, has also said more funding is desperately needed. It is people like her most vulnerable constituents who will struggle as council funding is cut.
Middle-income earners
The good news
Increasing pensions with inflation
Hunt has committed to the triple lock which means pensions will rise in line with inflation. The triple lock rule means pensions rise with whichever is highest: inflation, average earnings, or 2.5 per cent. It was suspended earlier this year due to the economic impact of the pandemic, and pensions and benefits rose by 3.1 per cent.
The bad news
Tax on electric vehicles
Electric cars and vans are to be subject to vehicle excise duty for the first time from 2025. Company car tax rates will remain lower for electric vehicles.
Freezing pensions lifetime allowance
The chancellor has announced an extended freeze on the lifetime allowance for pensions, which The Telegraph reports could leave savers £260,000 worse off.
Not extending stamp duty cut
Hunt confirmed the stamp duty cut announced by Kwasi Kwarteng and Liz Truss in September will now be time-limited and end in March 2025.
The measure, which raised stamp duty exemption from £125,000 to £250,000 and increased the first-time buyer discount from £300,000 to £425,000, is intended to bolster house prices and encourage house buying transactions to continue in the face of a likely market crash.
House prices have reached record highs since the pandemic but have stagnated in recent months as mortgage rates have risen to combat inflation.
Hunt said the cut will now run until 2025 “creating an incentive to support the housing market and the jobs associated with it by boosting transactions during the period the economy most needs it”.
Freezing inheritance tax thresholds
The chancellor has frozen inheritance tax thresholds instead of increasing it in line with inflation. Inheritance tax is currently paid at 40 per cent on the value of the estate over the level at which no tax is paid. That’s been set at £325,000 since 2009, and £650,000 for a couple.
A rise in energy bills and no universal energy bills support
If people earn £1 over the benefits threshold they get no additional support with their energy bills, in spite of prices rising, The Times reports.
High-income households
The good news
The good news if you’re in a high-income household is, well, that you’re in high-income household. Everyone’s costs are going up but the effect on your finances should be insulating you from most, if not all, of the effects of the cost of living crisis.
The bad news
Lowered 45p threshold
Speaking about tax rises, Hunt said: “We ask those with more to contribute more.” Hunt has lowered the threshold for the 45p additional rate of income tax, from £150,000 to £125,140. The move could bring up to 250,000 taxpayers into the band – but it will only cost them £580 a year, a small proportion of their annual income.
Cutting tax free allowance on capital gains tax and dividends
People who earn money from selling business assets or very expensive goods have to pay capital gains tax, and the threshold when this starts is coming down, Hunt said.
The same goes for dividends, which are paid out to shareholders of companies.
The chancellor said: “I will soften the blow on businesses with a nearly £14 billion tax cut over the next five years. Nearly two thirds of properties will not pay a penny more next year and thousands of pubs, restaurants and small high street shops will benefit.”
This will include a new government-funded transitional relief scheme, benefitting around 700,000 businesses.
Retain the employment allowance
Employment allowance will be retained at a higher level of £5,000, and that will be maintained until March 2026. This threshold is twice as high as EU averages, Hunt said in the Autumn Statement.
The bad news
Freeze VAT threshold
The point at which business start paying VAT will stay the same for the next two years, meaning that as business incomes increase due to inflation, many will start paying VAT sooner. These costs are likely to be passed onto customers through higher prices.
Increase windfall tax on oil and gas companies
In his Autumn Statement, Hunt said “I have no objection to windfall taxes if they are genuinely about windfall profits”. There will be tougher windfall tax on North Sea oil and gas operators – which means that oil and gas companies will face higher tax rates. The existing windfall tax, known as the energy profits levy, will increase from 25 per cent to 35 per cent from January 1. This will last until at least March 2028 – but Hunt said it will be “temporary and not defer investment”.
Simon Francis, a spokesperson for the End Fuel Poverty Coalition, said: “The chancellor could have raised all the money required to save the public from fuel poverty this winter through a more comprehensive windfall tax. Instead, he has chosen to protect the profits of oil and gas firms over protecting people’s lives.”
New windfall tax on electricity generators
Some electricity generators will have to pay for the first time too. Hunt will hit electricity generation companies with a temporary 45 per cent windfall tax on their “excess returns”.
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