The Autumn Statement on November 17th, 2022 was heavily trailed as a harsh, ‘slash-and-burn’ attack on public expenditure. Taxpayers were to be clobbered, too. But all things being considered, it was probably more defensive than that. Chancellor Jeremy Hunt juggled competing interests to ensure that most of the giveaways were in the near term (April 23) and most of the pain was delayed until later (2025, after the next election).
Here’s my take on what’s announced and what it means for my ‘typical’ client. They’re aspirational savers that know they need to have pensions, investments and/or savings in place to provide for later years.
Autumn Statement or Budget?
I’d originally planned to write this after Kwasi Kwarteng’s ‘mini-budget’, but that unravelled rather quickly. Then the about-turn on his policies, once Hunt was put in place. Now with a new PM, too, we have an ‘Autumn Statement’. But we all know it was a Budget, don’t we? No red box though.
We’re definitely in recession and the outlook for the economy is worsening, so we look at the Autumn Statement announcements in that light.
Headlines of Autumn Statement and What it Means for You
- For most people, rates of taxation are unaltered. That’s the big three of income tax, VAT, National Insurance. However, if you’re expecting a pay rise sometime soon, look out. That’s because he’s frozen the income tax thresholds, the point at which you start paying tax or move into a higher rate. So, your pay rise may attract a higher level of marginal tax.
- For higher earners, the 45% rate stays but the threshold has been cut to £125,000, when you start paying it.
- For those that pay themselves through limited companies, as a number of my clients do, the tax-free dividend allowance is cut by 50% from next April. The rate of corporation tax is increasing to 25% on profits over £250k. (Small businesses with profits under £50k still pay 19%). Business owners should plan carefully from April 2023; maybe their circumstances mean that a change in the way they pay themselves becomes worthwhile. Either way, expect to pay more tax.
- Benefits, including state pensions will increase in line with inflation (10.1%).
- Energy price guarantees will continue until April 23, at least.
- National Living Wage increases, so employers will have to increase staff pay to continue to offer it.
- Windfall tax on energy companies’ excess profits is being extended.
- Spending cuts of £30bn were announced, mainly for the future beyond the life of this government. Specific details the subject of yet another Efficiency and Savings Review.
- Local councils are allowed to increase council tax by 3% without a local referendum, so expect all of those (in England) to rise by that amount, as further social care cost commitments were dropped onto them at the same time. So, expect to pay more tax next year for local services.
- Electric cars will have to pay vehicle excise duty from 2025, too.
- Also, the review of the state pension age will be brought forward into 2023. So, although nothing was announced, expect to have to work longer before claiming a state pension. And maybe the triple-lock will be amended, too. All to cut costs. Watch this space.
Keep Looking to the Horizon
This Autumn Statement was extensive, covering a lot of ground for short- and long-term personal financial planning. None of these changes come in with immediate effect, so tax year-end planning will be even more essential this year, for all of my clients. Most of us will end up paying more in tax next year than this. How much more depends on your circumstances.
While the levels and bases of taxation and reliefs from taxation can change at any time, I can help you to make the most of your own, individual circumstances. It’s vital to ensure you’re set up optimally to take advantage of any allowances, exemptions and reliefs available this year and prepare for the changes that come in over the next two and more years. Rest assured that I’ll continue to provide advice, both financial and non-financial, to help you achieve your goals and aspirations.
And don’t forget, short term fluctuations are normal and when planning for retirement, it’s generally better to focus on the long-term horizon.
If it all makes you concerned, look back on some of my earlier blogs, they may help to reassure you: