Hunt: UK in ‘recession’ but Autumn Statement plan leads to a shallower downturn

Hunt blamed global factors for the UK’s economic slowdown, citing high inflation – which hit 11.1% in the 12 months to October 2022 – and the effects of the pandemic, as well as a “made in Russia” energy crisis which caused wholesale gas and electricity prices to rise to eight times their historic average. “There may be a recession made in Russia but there is a recovery made in Britain,” he said, after outlining a package of £30bn in public spending cuts and £25bn of tax rises.

 Income tax and National Insurance

Hunt announced he would maintain at the income tax personal allowance and higher rate threshold, and the main National Insurance thresholds, at current levels until April 2028 – a move which Investec analysis said could push 742,000 people into a higher rate tax band from April 2023.

The 45% top rate of income tax threshold will be reduced from £150,000 to £125,140 from 6 April 2023. “Putting the thresholds on ice, and lowering the 45p tax band, will raise billions for the Treasury,” Mazars partner Paul Barham said, adding that “millions will be in the higher and additional rate tax bands in the coming years”.

Hunt also confirmed a freeze in the Employers’ National Insurance threshold until April 2028, although the Employment Allowance would remain at its new, higher level of £5,000 meaning 40% of all businesses will still pay no NICs at all. The tax-free dividend allowance will be cut from £2,000 to £1,000 from 6 April 2023, and then to £500 in 2024/25.

 VAT and business taxes

The chancellor also announced the VAT registration and deregistration thresholds would be maintained at the current levels for an additional 2 years from 1 April 2024. “At £85,000, the UK’s VAT registration threshold is more than twice as high as the EU and OECD averages,” the Autumn Statement supporting document said.

Hunt also said from April 2025 electric vehicles will no longer be exempt from Vehicle Excise Duty, although company car tax rates will remain lower for electric vehicles and rate increases would be limited to 1ppt a year for three years from 2025.

On business rates, the chancellor said the government would proceed with the revaluation of business properties from April 2023, but that he would soften the blow with a nearly £14bn tax cut over the next five years – nearly two thirds of properties will not pay a penny more next year, with measures such as freezing the multipliers, increasing relief for retail, hospitality and leisure businesses to 75%, and abolishing downward caps. He also said there would be a new government-funded Transitional Relief scheme, and that a proposed online sales tax has been shelved.

Following “concerning reports of abuse and fraud” in research and development (R&D) tax relief for SMEs, the chancellor said, he was cutting the deduction rate for the SME scheme to 86% and the credit rate to 10% but increase the rate of the separate R&D expenditure credit from 13% to 20% for expenditure on or after 1 April 2023.

For multinational enterprises, Hunt confirmed the UK would implement the OECD Pillar 2 rules for a global minimum corporate tax rate of 15% for accounting periods beginning on or after 31 December 2023, saying: “This will protect the UK tax base against aggressive tax planning and reinforce the competitiveness of the UK, raising £2.3bn a year by 2027–28.” Additionally, the Diverted Profits Tax rate will increase from 25% to 31% from April 2023 in order to retain a six percentage points differential above the main rate of corporation tax, and tariffs on more than 100 goods are being removed for two years “to help put downward pressure on costs for UK producers”. Meanwhile, a proposed online sales tax has been shelved.

 Capital Gains Tax and Stamp Duty Land Tax

The Annual Exempt Amount for capital gains tax will be cut from £12,300 to £6,000 in April 2023 and then to £3,000 from April 2024. “Cuts to the dividend and capital gains allowances will leave UK-based investors worse off,” Killik & Co partner Rachel Winter said. “It is now more important than ever for individuals to use their annual ISA allowances to protect their investments.”

Hunt also confirmed that the SDLT threshold amendment brought in by ex-Chancellor Kwasi Kwarteng in the Growth Plan on 23 September 2022 would end on 31 March 2025.

 Inheritance Tax

The Chancellor froze inheritance tax (IHT) thresholds for a further two years until April 2028, following record IHT receipts (per HMRC figures) of £6.1bn for the most recent tax year 2021/22, an increase of 14% on the previous year. “This means even more people will be caught in the IHT net,” said James Green, deVere Group investment director. “As the Autumn Statement delivers another painful body blow to millions, we expect many people will logically conclude that there are fewer than ever incentives for them to keep their financial assets in Britain.”

 “Windfall tax” on energy companies

From 1 January 2023, the Energy Profits Levy rate will rise to 35% (from 25%). The Autumn Statement supporting document states the investment allowance will be reduced to 29% for all investment expenditure (other than decarbonisation expenditure) broadly maintaining its existing cash value. Decarbonisation expenditure will continue to qualify for the current investment allowance rate of 80%. The levy will end on 31 March 2028 – this is expected to raise over £40bn in total over the next 6 years.

The government is also introducing the Electricity Generator Levy, a temporary 45% tax that will be levied on extraordinary returns from low-carbon UK electricity generation from 1 January 2023.

“Shares in electricity generators such as SSE have weakened following the mention of a new windfall tax,” Killik & Co partner Rachel Winter reported. “This will have been a difficult decision for the chancellor to make, given that any additional taxes now will limit the ability of these companies to invest in more renewable capacity.”