Jeremy Hunt will announce his first Autumn Statement on Thursday, 17 November.
The new chancellor is preparing to make “difficult decisions” to repair the country’s £50bn fiscal black hole, and has already warned that “everyone will pay more taxes”.
The Autumn Statement replaces the “medium-term fiscal plan” that was supposed to be announced on 31 October.
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Instead of setting out a scary Budget on Halloween, the chancellor is now widely expected to turn his Autumn Statement into a “Frozen Statement”, with a range of tax allowances frozen as part of a stealth tax raid.
It means that a toxic combination of inflation, investment gains, and house price and wage growth, will push millions more taxpayers into higher tax brackets; some may even start paying certain taxes for the first time. Workers, investors, pension savers and even grieving families could all be hit by the Frozen Statement.
Hunt previously said “decisions of eye-watering difficulty” would have to be taken to reduce government debt and calm the markets, after the chaos unleashed by Kwasi Kwarteng’s mini-Budget in September.
After the Bank of England raised interest rates to 3% – the biggest hike in decades – Hunt reiterated his warning that there was more bad news to come. He said: “Sound money and a stable economy are the best ways to deliver lower mortgage rates, more jobs and long-term growth. However, there are no easy options and we will need to take difficult decisions on tax and spending to get there.”
What will be announced in the Autumn Statement?
The chancellor will publish a forecast from the Office for Budget Responsibility (OBR), and further measures such as spending cuts and tax hikes. It will set out in detail plans to plug the "fiscal black hole" – estimated to be at least £50bn – as well as a medium-term plan to grow the economy. Hunt was supposed to deliver a smaller version of this on 31 October, but after the prime ministerial revolving door spun round once more – Liz Truss out, Rishi Sunak in – the decision was taken to delay it and transform it into a full Autumn Statement.
The Treasury has warned of tough decisions – a sentiment echoed by industry experts.
Nimesh Shah, chief executive of the accountancy firm Blick Rothenberg, says he doesn’t expect to see any “giveaways”, adding: “The tone under Jeremy Hunt [compared to Kwarteng] is very different; the government is focused on maintaining tax receipts and cutting spending in order to reduce the debt cost.”
Indeed, within just days of becoming chancellor, Hunt had taken an axe to policies designed to support households struggling with the unrelenting cost of living crisis. He scaled back the Energy Price Guarantee, shelved plans to cut a penny off the basic rate of income tax and reversed the 1.25% cut to dividend tax.
Energy Price Guarantee
Hunt announced he was scaling back the Energy Price Guarantee within weeks of taking over, but he’s yet to announce a replacement.
It looks likely he will let the subsidy scheme expire for most in April of next year, although he has pledged to protect the most vulnerable.
According to reports, the government may be considering keeping some form of the cap while also allowing energy prices to increase, reducing pressure on the public finances. While the average energy bill would still rise to an uncomfortable level for most consumers under this plan, it would stop prices spiralling out of control.
However, as the situation in global energy markets remains incredibly fluid, it's too early at this stage to say with a high level of confidence what level consumers’ bills will settle at next year.
Council tax shake up
Reports have emerged that Hunt may also look to shake up the council tax system in order to allow local authorities to raise more money from homeowners.
Under the current system local authorities are not allowed to raise council tax bills by more than 2.99% each year. That includes 1% for the social care precept and 1.99% for general council tax.
If local authorities want to raise more money they have to put the plans to a local referendum, allowing constituents to veto any proposals.
While the Conservative Party manifesto in 2019 pledged to keep the veto on large council tax rises, it appears Hunt may be looking at this avenue to help councils fund social care.
Options on the table include raising the threshold at which a referendum has to be called or scrapping the requirement for a referendum altogether.
Under Tony Blair's Labour government, inflation-busting council tax hikes were common until the coalition government changed the law to cap rises at 2.99%. Since then councils have relied on government grants to fill the gaps between spending and income.
Inheritance tax threshold could be frozen
There is speculation the chancellor will extend a freeze on the inheritance tax (IHT) threshold until April 2028 https://moneyweek.com/personal-finance/tax/inheritance-tax/605498/inheritance-tax-warning-autumn-statement.
Rishi Sunak previously froze the threshold at £325,000 until April 2026 when he was chancellor, and Hunt is expected to prolong the freeze for another two years.
Such a move would mean the tax-free allowance will have remained the same for almost two decades - since 2009 - instead of being raised in line with inflation. If it had been adjusted with rising prices, it would have increased to £464,643 (CPI), or £537,129 (RPI).
Experts say freezing the threshold could see the Treasury pocket an extra £1bn, due to more people’s estates being dragged into the IHT net.
James Green, investment director of the financial adviser deVere Group https://www.devere-group.com/, says the “covert tax increase… will soon start putting a painful squeeze on grieving families”.
He adds: “IHT is very obviously no longer just for the super wealthy, as it was originally intended. It’s impacting more and more middle-class families whose main asset is their family home.”
Pension tax breaks could be frozen – or even cut
Tory governments are fond of tinkering with pensions to raise revenue - and it’s likely Hunt will continue this tradition next week.
According to the Telegraph, the pension lifetime allowance is set to be frozen for two more years, until 2027. The lifetime allowance refers to the amount that savers can accumulate in pension pots during their lifetime without being hit with a penalty when they come to take the money out.
It currently stands at £1,073,100. Savings over that limit are taxed at 55% if the money is taken as a lump sum, or at 25% plus your marginal rate of income tax if withdrawn gradually.
Experts believe the extended freeze will catch an extra two million pension savers. The knock-on effect is that some workers, especially those in the NHS and other parts of the public sector, will simply stop paying into their pension to avoid the tax and retire early - further exacerbating shortages in those workforces.
Sean McCann, chartered financial planner at the insurer NFU Mutual, believes Hunt may also look at lowering the pension annual allowance to raise revenue. This would be simpler than changing pension tax relief.
He notes: “You can currently put up to £40,000 in a pension each tax year, but slashing that to £30,000, or even £20,000 to align with the annual ISA allowance, would save the government huge sums. However, the population is not saving enough for retirement so the government will need to tread carefully.”
What about the state pension triple lock?
The triple lock refers to the guarantee that the state pension will increase each year in line with whichever is highest out of inflation, wages or 2.5%. It is currently suspended until April 2023, but there are fears that the one-year suspension could be extended, or that the triple lock could be axed for good.
The triple lock is a key Conservative manifesto pledge, and one that Truss and Kwarteng had committed to in recent months.
However, new power duo Sunak and Hunt have offered no such assurance. Hunt said last month: “I’m very aware of how many vulnerable pensioners there are and the importance of the triple lock but [...] I’m not making any commitments on any individual policy areas [...] every decision we take will be through the prism of what matters most to the most vulnerable.”
On becoming PM, Sunak has also made no commitment to the policy.
On the other hand, it has been reported that Sunak is reluctant to scrap the pledge because pensioners are unable to boost their incomes through other means. If Hunt can raise billions using a Frozen Statement, it could mean the triple lock survives.
Pensioners received a 3.1% annual increase in April. In April 2023, if the triple lock is restored as planned, they could see their payout rise by 10.1%, due to soaring inflation.
However, if Hunt decided to scrap the triple lock and uprate state pensions by wage growth instead (5.5%) next year, pensioners would lose out on up to £442, according to the investment platform AJ Bell.
Tom Selby, head of retirement policy at AJ Bell, believes there will be some heated discussions between No.10 and the Treasury over the triple lock. “What we have here is a genuine tussle between politics and ensuring the public finances remain on a sustainable footing,” he notes.
Benefit increases to be revealed – and a boost to the National Living Wage
We should find out what is happening to benefit increases when Hunt delivers his Autumn Statement.
Benefit payments usually rise every April. Truss previously failed to commit to increasing benefits in line with inflation, and was expected to make a final decision this month.
While capping benefit increases would be an easy way to raise revenue, Sunak is said to be planning to stick with an inflation-linked rise, to ensure the government is seen as “fair and compassionate”.
Meanwhile, the chancellor is expected to announce a rise in the National Living Wage, from £9.50 an hour to about £10.40 an hour. The rise of nearly 10% would benefit around 2.5 million workers.
Income tax thresholds could be frozen for longer
Income tax thresholds are already frozen until 2026, but Hunt could announce an extension to this, possibly until 2028.
This is a stealth tax that would drag millions of people into the income tax system for the first time, or into higher tax bands.
NFU’s McCann told MoneyWeek: “It’s unlikely we’ll see an increase in the rates of income tax or VAT, as that would go against one of the key pledges of the 2019 manifesto, but there are other ways the government can raise revenue.
“If Jeremy Hunt freezes income tax thresholds, this will drag even more people into 40% and 45% tax bands over the next six years as wages increase.”
He adds: “Those who find themselves being tipped into higher rates of tax should consider paying more into their pension to reduce their taxable earnings.”
Experts say extending the income tax band freeze is “very likely”, and could save the government £5bn a year.
National Insurance could be tweaked… again
The government reversed the 1.25 percentage-point increase in National Insurance contributions (NICs), introduced by Sunak when he was chancellor, on 6 November.
But Hunt could be tempted to look again at NICs as a way of raising money to plug the fiscal hole. Fiddling with NICs rather than income tax is arguably more palatable to voters (simply because many people don’t understand it), and avoids negative headlines about income tax being raised.
Shah at Blick Rothenberg comments: “Hunt may scale back the 1.25% reversal so it only applies to basic-rate taxpayers (anyone earning less than £50,271 a year) from next April – therefore, someone earning above the higher rate would pay National Insurance at 3.25% (rather than 2%).”
He adds that the chancellor could go further, and “apply National Insurance to rental profits and capital gains” too.
Capital gains tax allowances could be frozen or lowered
According to McCann, if the chancellor wants to target those with the broadest shoulders, he could look at capital gains tax. “CGT is currently charged at 10% and 20% – plus an additional 8% if the gain is from residential property – but the Office of Tax Simplification (OTS) has previously recommended aligning the rates with income tax.
“Aligning CGT with income tax may be viewed as disincentivising enterprise, so increasing the rates to 20% and 30% and retaining the 8% surcharge on residential property would be a compromise that would still raise increased revenue for the Treasury. Most CGT comes from a small number of taxpayers who make the largest gains, and this move would help raise further money from that group.”
There are rumours that the CGT annual exemption – currently £12,300 – will be stuffed in the deep freeze as part of the Frozen Statement, instead of raising it to reflect inflation (and house price and investment growth), which normally happens each year.
McCann fears the chancellor could be more aggressive though, by slashing - rather than freezing - the allowance.
He notes: “The chancellor could reduce the CGT annual exemption of £12,300 in order to widen the net of those who pay the tax. Latest figures suggest CGT is paid by 323,000 people, but the OTS estimates that reducing that annual exemption to £5,000 would double that number.”
If we do see a tougher CGT regime announced next week, it will reinforce the case for utilising ISAs and pensions, as gains within these are not taxable. Married couples and those in civil partnerships can also transfer assets to each other to make use of both sets of CGT allowances, as well as shift a potential gain to the partner who is in a lower tax band.
Public spending could be squeezed
Hunt will be aiming to save money wherever he can, from cutting planned investments (the HS2 rail project will be reviewed, for instance) to trimming day-to-day department spending. Sunak has vowed to protect only one area of spending, the NHS, meaning other departments like welfare, education and defence could face large cuts.
The spending squeeze could also mean below-inflation pay deals for public sector workers like teachers, civil servants, police and social workers.
Remember to get your tickets for the MoneyWeek Wealth Summit hosted by Merryn Somerset Webb, on 25 November 2022! – we’ve got some brilliant speakers lined up and, given everything that’s going on, we’ll have an awful lot to talk about.
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Ruth is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times.
A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service.
Outside of work, she is a mum to two young children, a magistrate and an NHS volunteer.
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