What will be in the 2022 Autumn Statement?

UPDATED TO 11 NOVEMBER

Major spending cuts and tax rises are set to take place in the 2022 Autumn Statement, with tax allowances frozen and rumours of hikes in Income Tax and Capital Gains Tax 

On 17 October new Chancellor, Jeremy Hunt, buried what had briefly been referred to as Trussonomics, reversing many of his predecessor’s Emergency Mini-Budget measures. And on 17 November he will hold a memorial service for that Growth plan by announcing a combination of new spending cuts and tax rises.

The extent of those cuts and rises is rapidly becoming clear with each day’s press reports of new measures likely to be unveiled.

Leaks

There is a scene in the TV comedy Yes Minister where Jim Hacker is complaining about government leaks in the media, pointing out that most leaks appear to come from No 10. To which Sir Humphrey retorts that the ship of state is the only ship that leaks from the top.

And so, it appears that ex-Chancellor Rishi Sunak, now ensconced in No 10, together with his protégé next door in No 11, are keen to road test a variety of ideas in the media in advance of the Autumn Statement.

An old trick used by many previous chancellors before eventually announcing that things are not quite as bad as predicted. 

With that in mind we have summarised all the key leaks and speculation so far about what may be in the Autumn Statement. If new leaks appear, we will update this article.

If you want to see what survived from the Emergency Mini-Budget on 23 September, check out our Budget Tracker

Webinar

Join us on Friday 18 November for our upcoming Autumn Statement 2022 webinar, where our panel of tax experts will be analysing the announcements and commenting on how these may affect you.

Filling the black hole in public finances

In 1971 Stephen Hawking suggested that black holes were formed in the chaotic environment of the earliest moments of the Big Bang. A year later in 1972 Anthony Barber created a big bang for growth that unravelled chaotically in a sterling crisis and high inflation. 

50 years later, we had another big bang on 23 September 2022 with Kwasi Kwarteng’s Emergency Mini-Budget. That also contributed to a sterling crisis and the already rising inflation.

So, we now have a black hole in UK public finances of between £35bn and £50bn, depending on which newspaper you read.

The latest rumours suggest that the Autumn Statement will unveil around £35bn of spending cuts and £25bn of tax rises.

Treasury orthodoxy is to cut spending and raise taxes to fill the hole, at the same time working with the Bank of England to reduce inflation, avoid a recession, cap public sector-pay demands, and ensure stability in the markets.

Hunt has already promised tax rises and “eye-watering” spending cuts in order to balance the books. 

But such orthodoxy is counterproductive to boosting growth, and therein lies the dilemma for Sunak and Hunt. They cannot cut spending or raise taxes by too much. And in a way it is a false dilemma as Sunak knows very well that he can, if he wishes, increase the money supply through quantitative easing. But he won’t admit that.

Interestingly, on 10 November, author of the Emergency Mini-Budget, Kwasi Kwarteng, said in an interview: “You’re not going to grow an economy or incentivise economic growth by putting up our taxes.” He added that the government still needed a growth strategy.

Indeed, if Sunak and Hunt go for Austerity v 2 then that will impede growth and make matters worse for the economy.

Specific predictions

Frozen tax allowances (fiscal drag)

Sunak as Chancellor froze personal allowances and thresholds until 2026, and with rising inflation this could raise in the region of £30bn with an extra 1.25m people dragged into the 40% tax bracket due to wage and price inflation. It could also mean around 1.5m people on low wages will be dragged into paying the basic level of income tax.

Hunt is considering extending the freeze to 2027/28. This is effectively taxation by stealth.

Income Tax rate rise

Sunak and Hunt are contemplating the return of a 50p tax rate for top earners. The top rate of income tax could increase from 45p to 50p. 

Alternatively, and more likely, there could be a lowering of the current £150,000 income threshold at which the top rate of tax kicks in. Rumours are that the threshold will be lowered to £125,000, which is just fractionally below the point at which the personal allowance is completely removed, which happens at £125,140.

Inheritance tax

There are rumours that inheritance tax thresholds could be frozen for a further two years, bringing more estates into the IHT net as a consequence.

Keeping the £325,000 threshold in place until April 2028 is another stealth tax.

Dividends tax

The dividends tax increased by 1.25% in April 2022 in line with the NIC rise. Whilst the NIC rise was reversed from 6 November, the dividends tax rise was not.

Rumours persist that Hunt will halve the current £2,000 dividend allowance. He is also reportedly considering raising the rate of dividends tax even higher. This will affect those with investments held outside an ISA.

For owner-managers of companies weighing up whether to pay themselves dividends or salary, the difference in tax burden is tight.

See our article: Impact on Owner Managers of the Emergency Mini-Budget

National Insurance

Although the April 2022 increase in NIC rates was reversed on 6 November in the Emergency Mini-Budget, it is a distinct possibility that they could be increased again from next April.

Hunt did not keep the April 2022 increase, as the reversal had already passed into law when he became Chancellor. He may seek to redress that issue, particularly in view of the fact that the dividends tax rate hike in April 2022 was retained.

Sunak's 1.25% increase in the rate of NICs last April was a precursor to the Heath & Social Care Levy which was meant to start in April 2023. That levy was scrapped in the Emergency Mini-Budget. So, if the 1.25% NIC increase is reinstated next year, will we also eventually see the return of the levy, even though rumours persist that Sunak will delay indefinitely the planned cap on social care costs?

Capital Gains Tax

Currently, if you have £50,000+ of income you will pay income tax at the rate of 40%, and if your income exceeds £150,000 you will pay tax at 45%.

However, if this was capital gains instead of income then nothing would be paid on the first £12,300, and only 20% on the balance. (There is an 8% surcharge for residential property).

So, there is a large discrepancy in the tax rates charged between income and capital.

Back in 1988, then then Chancellor Nigel Lawson aligned the rates of CGT with those of income tax to address this issue, although it was later changed by Alistair Darling to a flat rate. But the idea has now been picked up again by Hunt who may re-align the rates to increase the tax take from CGT.

To stop people triggering gains ahead of any tax rate increase, the measures could take effect on the day of the Autumn Statement.

CGT allowances and reliefs may also be cut.

Pension tax relief

Although it has been rumoured many times before, this time Hunt may actually seek to limit tax relief on pension contributions to save tax.

Quite how this would be applied remains to be seen but imposing a flat rate of, say, 20% relief would rake in around £10bn a year for the Treasury.

There could also be changes to the pension lifetime allowance with it being frozen for two more years from 2025 to 2027. This could mean around 2 million savers facing a 55% tax charge on their retirement pots during that time. 

R&D Tax Credits

There are already changes in the pipeline to restrict R&D Tax Credits from next April, but there are rumours that Hunt will seek to further restrict the amount that can be claimed by tightening the eligibility criteria.

New anti-avoidance measures could also be introduced and possibly accompanied by a beefed up HMRC enquiry process to police claims.

These measures will be counterintuitive to boosting growth, particularly when the government has had a long-term commitment to invest 2.4% of GDP in R&D (the OECD average is 2.7%). Investment in innovation is crucial for the economy's future and it cannot be achieved overnight.

Stamp Duty Land Tax

The Emergency Mini-Budget removed Stamp Duty in England from properties worth up to £250,000, or £425,000 for first-time buyers purchasing properties for up to £625,000. Hunt has not touched this measure yet.

He could seek to reduce the thresholds again or instead look at tightening the rules on mixed-use properties and multiple dwellings relief.

Capital allowances

The Emergency Mini-Budget announced that the Annual Investment Allowance would be set permanently at £1m instead of its planned reduction to £200,000 from next April.

What has not been mentioned so far is the 130% Super Deduction which is set to expire on 31 March 2023.

Will Hunt seek to keep the Super Deduction, and if so, will he change the rules?

Firms are not investing as much as the government would like and a fear of inflation and a recession will inhibit any motivation to invest in new plant and machinery. Keeping a tax incentive to invest would therefore make sense, but that will not necessarily help business confidence generally.

Business Rates

Business rates are a major cost for many businesses. 

With inflation for September running at 10.1%, the figure used to set rate changes in the following April, this means a significant rise in business rates next year. On top of this is a business rate revaluation due in April 2023 which will see over 2m commercial properties in England have their rates revalued based on open market rental values in April 2022.

In addition, the current 50% relief for hospitality, retail and leisure firms is meant to end on 1 April 2023, potentially crippling many firms in those sectors.

If Sunak and Hunt wish to encourage growth, then they need to address business rates. But will they? They could in the meantime choose to freeze rates or at least let them rise by less than inflation.

A long overdue reform of business rates is needed, but some temporary reliefs could be introduced such as for investment in green plant and machinery.

To balance out more reliefs, the government may also consider the introduction of a much-discussed online sales tax to target online retailers.

Council tax

There are media rumours that local authorities will be allowed to raise more in council tax by removing a requirement to hold a referendum if they are increasing it by more than 2.99%.

As this would have a direct impact on those on low pay, such a measure would have to come with targeted relief.

Windfall tax

Sunak and Hunt are considering extending the windfall tax on oil and gas companies by increasing the rate from 25% to 30% or even 35% and extending the tax until 2028 as well as widening the scheme to cover electricity generators. 

Value Added Tax

The Chancellor is rumoured to be freezing the threshold at which businesses must register for VAT at £85,000 of turnover until 2026, instead of increasing this in line with inflation.

With inflation creating higher prices, this will inevitably drag more small businesses into the VAT net.

There could also be other adjustments to the rate and extent of VAT.

Other tax changes

Other tax announcements could include the following:

• New anti-avoidance measures to reduce tax loopholes
• Reductions in business regulations to boost growth
• New rules for Off-Payroll workers or at least a review of the rules
• A significant increase in the annual charge for dwellings held in companies (ATED)
• The new Investment Zones scrapped in favour of a revised urban regeneration policy
• A review of the non-domiciled tax rules & possible reduction in the time UK residents can avoid tax on their worldwide income
• Taxation of ‘foreign millionaires owning UK homes in the UK whilst living overseas
• Reforms to the Apprenticeship Levy

Spending

We expect to see significant cuts in departmental spending.

In addition:

• We can also expect to see an indefinite delay in a cap on social care costs.
• Whilst Hunt indicated that the government would not commit to the state pension triple lock, it would now appear that this will be retained in line with the 2019 manifesto pledge.
• State benefits may also now rise in line with inflation to support the most vulnerable

Other measures

Others measures that could be announced include:

• An increase in the National Minimum Wage from next year
• A delay in the introduction of Making Tax Digital for Income Tax
• An announcement about the delayed Audit Reform Bill

Need to keep up to date?

With so many changes taking place to tax policies, it is challenging to keep up to date.  We will, however, endeavour to keep our Budget predictions up to date as we become aware of developments.

In the meantime, and in advance of the Autumn Statement on 17 November, if you would like to discuss how these changes in tax policy may affect you and/or your business, please contact your usual Bishop Fleming advisor.

[Gary Mackley-Smith]