When ex-prime minister Liz Truss resigned on 20 October 2022, after just 44 days in office, the British economy was left in chaos. Now, new prime minister Rishi Sunak must face up to the challenge of fixing the economic mess in his cabinet’s Autumn Statement.
Having delayed the fiscal statement, originally planned for 31 October, the Autumn Statement is the first fiscal package since Sunak took up leadership.
Last month, annual inflation reached a 41-year high of 11.1% and the Bank of England (BoE) has warned that the UK could face recession throughout 2023 and the first half of 2024. So, in the Autumn Statement – delivered on Thursday 17 November – Chancellor of the Exchequer, Jeremy Hunt’s primary aim was to put the UK on a “balanced path to stability”.
Here are some of the highlights of the economic outlook, changes announced during the Autumn Statement, and what they could mean for you and your financial plan.
Jeremy Hunt seeks to grow the economy
Setting out his Autumn Statement, Hunt hopes to deliver stability but stressed that he also seeks to grow the economy.
While Hunt says that the economy is already in recession, the Office for Budget Responsibility (OBR) predicts that the economy will grow by 4.2% this year. In March, the OBR had previously forecast growth of 3.8% for 2022 and 1.8% for 2023.
The reason cited for these revisions in growth forecasts is mainly due to higher energy prices, where, despite new support with energy bills, living standards are expected to fall by 7% over the next two years.
Chancellor set out his plans for £55 billion in tax increases and spending cuts
More people will pay additional rate of Income Tax
The additional-rate tax band will now apply to earnings over £125,140, instead of the current £150,000.
This means that anyone with an income above £150,000 will pay an extra £1,243 in Income Tax each year.
Capital Gains Tax to be slashed
The Capital Gains Tax (CGT) annual exempt amount will fall from £12,300 to £6,000 in 2023, and to £3,000 in 2024.
This is a blow for high earners and wealthy entrepreneurs. From 2023/24, you’ll only be able to make £6,000 profits on non-ISA investments before CGT kicks in.
Dividend Tax is also being cut
The amount you can earn from dividends before Dividend Tax is due, will reduce from £2,000 to £1,000 in 2023 and will halve again to £500 in 2024. So, from April 2023 onwards, if you receive income from dividends, it’s likely that you will end up having to pay more tax.
This particular change will hit many First Wealth clients who hold income-paying shares outside their ISAs or pensions and limited company directors who are remunerated through dividends.
Tax-free Personal Allowance remains unchanged
Rather than rising in line with inflation, the tax-free Personal Allowance will remain at £12,570. The 40% higher-rate Income Tax threshold will also stay unchanged at £50,270.
According to the Institute for Fiscal Studies, by 2026, it’s expected that this will result in around 3 million people having to pay higher rates of Income Tax.
Inheritance Tax is also put on ice
The freeze to the Inheritance Tax “nil-rate band” will also be extended from 2025/26 to 2027/28. Sitting at £325,000 it is expected that this could raise at least half a billion pounds for the Treasury.
Business tax changes
Research and Development (R&D) tax relief deduction rate will be cut from 130% to 86%. Meanwhile, the credit rate will reduce from 14.5% to 10%. In slightly better news, there will be an increase on the separate R&D expenditure credit – which is rising from 13% to 20%.
From 1 April 2023, many businesses will be facing new business rates bills. To protect businesses from rising inflation, the chancellor announced that he was freezing the business rates multiplier for another year.
This mean that nearly two-thirds of properties will not pay a penny more in business rates next year. It is expected that thousands of pubs, restaurants, and small high street shops will benefit to the tune of £14 billion over the next five years.
Employment allowance will remain at the higher level of £5,000.
Stamp Duty remains unchanged
One of the Truss/Kwarteng “mini” budget measures to have survived intact in the Autumn Statement is the Stamp Duty threshold, which was doubled to £250,000. This will remain in place until 31 March 2025.
The State Pension triple lock was maintained
Next April, pensioners will gain a 10.1% boost to their State Pension. For the first time, next year the full annual amount of the new State Pension will rise above £10,000 and be worth more than £200 a week.
Help with energy bills extended
The energy price guarantee (EPG) has been extended beyond April and will remain for a further 12 months. This amounts to approximately £500 of support for British households.
Tax increases likely to hit entrepreneurs and wealthy investors hard
As you will have gathered, many of the changes announced in the Autumn Statement could have a detrimental effect on your finances.
The good news is that many of these announcements may not be felt in the immediate future.
With careful planning, it may be possible to mitigate the negative effects of higher taxes on your income and investments. By taking a holistic view of your circumstances and understanding your long-term goals, we can help you create a financial plan designed to protect and grow your wealth.
Get in touch
If you’re concerned about how the Autumn Statement might affect your financial plan and want to investigate how we can help mitigate your exposure to the incoming changes, please get in touch.
Email firstname.lastname@example.org, book a video call, or phone us on 0207 467 2700.
This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.