Chancellor Jeremy Hunt has this lunchtime unveiled a range of tax raising measures that will see the tax burden rise to 37.5% of GDP in 2024/25, the highest level since the second world war.
Taxes have now risen 4.1% as a proportion of GDP since the start of the covid pandemic. On the back of today’s statement, Treasury forecasts suggest that 55% of households will now pay more tax.
The most notable tax raising measures announced today are:
- The freezing of income tax allowances until April 2028. Treasury forecasts suggest this will see some 92,000 people paying income tax for the first time, with an estimated 130,000 taxpayers now moving up into the 40p bracket.
- There is a further reduction in the threshold at which people become liable to the 45p rate of income tax, from £150,000 to £125,140.
- The halving of the annual dividend allowance and of the capital gains allowance in 2024. The capital gains tax allowance will then halve again, dropping to £3,000 the following year.
- The imposition of Vehicle Excise Duty on electric cars for the first time.
- An increase in the windfall taxes on the energy sector (The Energy Profits Levy) from 25% to 35% between 2024 and 2028, alongside the introduction of a new temporary 45% Electricity Generator Levy.
Through this morning’s statement, the chancellor has attempted to generate a £55 billion consolidation in government finances, as the government strives to reduce government borrowing from its level of £177 billion this year. This consolidation is to be split largely evenly between tax rises and spending cuts.
On the back of the government’s plans, the national debt is now forecast to reduce to 97.6% of GDP in 2025/2026, and 97.3% in 2027/28.
With the UK entering into what the Bank of England has projected to be a 24 month recession, the bulk of the expenditure cuts will though be delayed until after 2024/25. Coming into effect after the next election, this approach constitutes a clear ‘hospital pass’ for whatever government is in office in the second part of this decade.
In the near term the government has announced a real terms increase in both health and education spending.
However remaining government departments will need to operate within existing cash budgets, something which will demand efficiencies in government spending, not least in the face of inflation and high rises in public sector pay. The government is to hold its overseas aid spending at 0.5% rather than return that level of spending to its former 0.7% level.
Referencing what he called his compassionate conservatism, the chancellor did though announce that benefits, including the state pension would increase with inflation. The government also announced that rent increases in the social rented sector will be capped at 7% and that the national living wage would increase by 9.5% to £10.32.
The government further announced that its energy support scheme would continue for a further 12 months from April 2023, albeit average energy bills will then be capped at the higher rate of £3,000 per year rather than the current £2,500 level.
The government has also announced a support package of £13.6 billion over the next five years to help small businesses with business rate costs.
Concluding his remarks, the Chancellor told the Commons, “There may be a recession in Russia, but there is a recovery made in Britain”.
Responding to Jeremy Hunt, the Shadow Chancellor, Rachel Reeves suggested that the Chancellor should have come to parliament to ‘ask for forgiveness’ suggesting that the country was receiving an ‘invoice’ for the ‘carnage created by the Conservatives’. Continuing Ms Reeves suggested that the government was ‘pick-pocketing’ the entire country.
Reacting to the autumn statement, Frances O’Grady the General Secretary of the TUC said, “This is a government more interested in rewarding wealth than work. This is a government choosing to hold down the wages of nurses and teachers while it allows bankers unlimited bonuses”.
Mark Littlewood, Director General at the free market think tank the Institute of Economic Affairs, said: “The Chancellor has put the United Kingdom firmly on track for higher taxes, more spending, and lower growth. This is a recipe for managed decline, not a plan for prosperity”.
Continuing he said, “Jeremy Hunt is right to emphasise the need to bring down our debt burden and slow down the growth in government spending. But the consequence of considerable tax hikes could be a deeper and longer economic downturn – ultimately resulting in less taxpayer revenue over the long-term. The Chancellor has chosen to protect pensioners and those on welfare, but ordinary workers have been clobbered.
