Jeremy Hunt has outlined a package containing “difficult decisions” that amounts to a “substantial tax increase” in an Autumn Statement he said would put the UK on a “path to stability”. The Chancellor said he was having to make difficult decisions to ensure a “shallower downturn”, but the economy was still expected to shrink 1.4% in 2023.
The Office for Budget Responsibility (OBR) forecast the UK’s inflation rate to be 9.1% this year and 7.4% next year, contributing to the squeeze on living standards. The OBR had concluded the UK “like other countries” is now in recession and was facing an increase in unemployment. The budget means government spending will continue to increase in real terms every year for the next five years, but at a slower rate than previously planned.
His package is in stark contrast to his predecessor Kwasi Kwarteng’s ill-fated plan for £45 billion of tax cuts, less than two months ago, which spooked the markets, pushed up the cost of borrowing and contributed to the downfall of Liz Truss’s short-lived administration. But what do the changes mean for you, will you pay more tax, and are benefits rising? This is what you need to know.
What does the Autumn Statement mean for you?
During the Autumn Statement Hunt set out a package of around £30 billion of spending cuts and £24 billion in tax rises over the next five years. He told MPs: “We want low taxes and sound money. But sound money has to come first because inflation eats away at the pound in people’s pockets even more insidiously than taxes.
“So, with just under half of the £55 billion consolidation coming from tax, and just over half from spending, this is a balanced plan for stability.” Among the key points of the budget and how they will affect people are:
Growth and recession
The OBR has said that the UK is “now in recession”, Mr Hunt said, but he added “overall this year, the economy is still forecast to grow by 4.2%”. Mr Hunt promised his autumn statement will lead to a “shallower downturn” in the UK’s finances.
- Underlying debt as a percentage of GDP is expected to fall from a peak of 97.6% of GDP in 2025-26 to 97.3% in 2027-28.
- Hunt announced two new fiscal rules, that underlying debt must fall as a percentage of GDP by the fifth year of a rolling five-year period, and that public sector borrowing, over the same period, must be below 3% of GDP.
Pay and support with the cost of living
- The energy price guarantee scheme is to increase from £2,500 for the average household to £3,000 for 12 months from April
- The government will introduce additional cost-of-living payments for the “most vulnerable”, with £900 for those on benefits, £300 for pensioners and £150 for those on a disability benefit.
- The Chancellor said he will cap the increase in social rents at a maximum of 7% in 2023/24, saving the average tenant £200 next year.
- The national living wage will increase by 9.7%, making the hourly rate £10.42 from April 2023.
The Chancellor told MPs the Office of Budget Responsibility (OBR) has confirmed “global factors” are the “primary cause” of inflation.
- The OBR forecasts the UK’s inflation rate to be 9.1% this year and 7.4% next year.
- He said the autumn statement will cause inflation to “fall sharply from the middle of next year”.
- The Chancellor confirmed the Bank of England’s remit will not be changed and it has his “wholehearted support in its mission to defeat inflation”.
Will you pay more tax?
Hunt announced changes that will mean higher earners will pay more income tax, he said during his statement that he was “asking more from those who have more”. However, Hunt said he would protect the increases in departmental budgets already set out in cash terms, before growing resource spending at 1% a year in real terms over the next three years. He said public spending would grow “slower than the economy”. This is what Hunt said about tax.
- The threshold at which the top rate of income tax is paid will reduce from £150,000 to £125,140, but said he was not raising headline rates of taxation. He said those earning £150,000 or more will pay just over £1,200 more a year.
- Electric vehicles will no longer be exempt from Vehicle Excise Duty from April 2025 to make the motoring tax system “fairer”.
- An increase to the windfall tax on oil and gas giants from 25% to 35% and imposed a 45% levy on electricity generators to raise an estimated £14 billion next year.
- The stamp duty cuts announced in the mini-budget will remain in place but only until March 31 2025. Hunt told the House the OBR expects housing activity to slow over the next two years.
- On business taxes, the Chancellor said he had decided to freeze the Employers National Insurance Contributions threshold until April 2028.
What was said about public spending?
The NHS will be asked to “join all public services in tackling waste and inefficiency”. Hunt said the NHS would publish an independently-verified plan for the number of doctors, nurses and other professionals needed in five, 10 and 15 years’ time.
However, the NHS budget will be upped by an extra £3.3 billion in each of the next two years and the Chancellor allocated for adult social care additional grant funding of £1 billion next year and £1.7 billion the year after.
Spending and benefits
Hunt said “with just under half of the £55 billion consolidation coming from tax, and just over half from spending, this is a balanced plan for stability”.
- The Chancellor said he will invest an extra £2.3 billion per year in schools over the next two years.
- It will “not be possible” to return to the 0.7% overseas aid target “until the fiscal situation allows”, Hunt said.
- The defence budget at at least 2% of GDP will be maintained
- Hunt said he would move back the managed transition of people from employment and support allowance on to Universal Credit to 2028.
- The implementation of the Dilnot reforms will be delayed for two years, Mr Hunt confirmed, announcing an increase in funding for the social care sector of up to £2.8 billion next year and £4.7 billion the following year.
- Working age and disability benefits will increase in line with inflation, with a rise of 10.1%, costing £11 billion.
- State pensions will increase in line with inflation in April, as Mr Hunt announced the “biggest ever cash increase in the state pension”.