Posted by James Pearson on 23 Nov 2022

Ominous headlines announcing the economic challenges facing the country are for once, largely free from hyperbole. The global increase in wholesale energy prices caused by several factors, including the war with Ukraine, along with the supply chain problems that are a legacy of Covid, have contributed to rising inflation and a downturn in living standards. As the government grapples with this, their solutions have at times exacerbated the problem, and as such we are now on our 3rd economic announcement/fiscal event/mini budget/autumn statement of the last 3 months.

In order to understand the solutions proposed by Jeremy Hunt in his statement on November 17th it might be worthwhile to consider why we currently find ourselves in our current state of chaos.

The Cost-of-Living Crisis 

The Chancellor opened his autumn state emphasising the global factors contributing to the current bleak economic picture, thus ensuring that we all know that blame should not sit with the government, and there is certainly an element of truth to this, global factors have compounded our current economic decline. 

The current cost of living crisis relates to the inability of wages to keep up with high levels of inflation. Inflation levels are based on the average change in the price of services and goods typically purchased by UK households in a 12-month period. Higher than normal energy costs in particular have contributed to current inflation levels; increased demand for gas in Asia, depleted gas stores in Europe, and the War in Ukraine have all contributed to the rise in prices. Furthermore, there has been a huge disruption to the global supply chain as a result of the worldwide pandemic shutdowns leading to a rise in the cost of everyday items. Shipping costs have increased, forcing up the prices of imported goods. In an attempt to curb rising inflation, the Bank of England has increased interest rates which in turn has amplified the borrowing costs for many households.

Wind back just a few short weeks to the ‘mini budget’, at this point inflation and interest rates were both higher than had been predicted by the OBR in March. The increasing interest rates had meant that the cost of government borrowing had soared and consequently, the unfunded tax cuts announced in September spooked markets already concerned by the Government’s debt overheads. Concern arose in markets over how the government was to balance the books with less money coming in through the announced tax cuts and chaos ensued. 

Fast forward to the present and the new Chancellor needs to provide stability and calm to turbulent markets and to ensure that the recession we are already in is shorter and less steep than predicted. The solution to the problem looks to be one that is going to make many of us feel much poorer

The Autumn Statement

Jeremy Hunt had already hastily reversed most of the tax cuts introduced in the mini-budget however, this new statement sets out the ways in which the gap between the costs of government borrowing and its income will be bridged. 

So, what does it mean for us all?

Income Tax 

Basic rate taxpayers should initially see little difference in the amount of tax they pay per month, the personal allowance has remained at £12,570 and the basic rate of tax is still 20%. However, this freezing of the personal allowance and the basic rate band constitutes a tax by stealth strategy. Usually, you would expect these bands and thresholds to rise in line with prices, however, this will not be the case, and any pay rise between now and 2028 has the potential to tip basic rate taxpayers into a higher tax bracket thus attracting a higher rate of tax. Furthermore, with prices rising and thresholds staying the same, a greater proportion of people’s income will be spent on basic day-to-day living costs, none of which will be offset by changes to income tax banding. 

For those in the higher rate bracket, the upper limit has been lowered, therefore if you were a higher rate payer earning towards the upper end of the bracket you are now likely to be an additional rate taxpayer. The higher rate band was between £50,271 to £150,00; however, this has been lowered to £125,140, meaning that a great many people who had been paying the higher rate of 40% will now be paying the additional rate of 45%. Given that in the October ‘fiscal event’ the then chancellor Kwasi Kwarteng had scrapped the additional rate altogether, this is quite a change. 

National Insurance thresholds will also be fixed for two years longer than had initially been expected. Previously the current thresholds and rates were expected to stay in place until 2026 but this has been extended until 2028. This element of the tax burden will be shared by both employees and employers as the National Insurance Secondary contributions are also fixed until April 2028.

Increasing taxes through fiscal drag, i.e., freezing tax thresholds, thus tipping people into higher tax brackets if or when their salaries increase, is quite a long way in which to grow tax revenue. The full impact of this policy will not be felt by the government coffers for a few years and, given that a general election will take place during this time, it may be that this policy does not last until the 2028 end date. 

Inheritance Tax 

The threshold at which people must pay inheritance tax has also been frozen until 2028, again a tax by stealth method ensuring that more people are required to pay inheritance tax on their estates. 

Capital Gains Tax 

Investors will find their returns on shares and other assets reduced by a change to the Capital Gains tax annual allowance. The £12,300 tax-free allowance has been slashed by more than half from £12,300 to £6,000 as of April 2023, and then in half again by the following April to £3,000.


The dividends allowance was also the victim of Hunt’s cuts; in April 2023 we will see the amount that is a tax-free drop from £2,000 to £1,000, and then to £500 from April 2024. This may create a tax planning point for those directors who have previously always extracted profits from a company via dividends. Previously dividends offered a more tax-efficient method of profit extraction than a salary or bonus. However, given the lowering of the tax-free dividend band, the effective tax rate between dividends and income has become marginal.

Corporation Tax 

It had already been announced that the planned increase in Corporation Tax would go ahead, meaning that from April, when companies have profits of over £250,000, corporation tax will now be charged at 25%, something which the autumn statement confirmed. The AIA investment allowance is also set to remain at £1 million as previously announced in the earlier fiscal event. 

The Autumn Statement announced changes to the R&D regime, with rates of relief cut from 14.5% to 10%. 

Energy Support Package 

The Energy Price Guarantee which provides a cap on domestic energy bills by limiting the price per unit of energy used was scheduled to end in April. Mr. Hunt has extended this for a further 12 months; however, it will be less generous from April, meaning that an average house will typically end up paying around £3,000 per year, as opposed to 2,500 until April. 

The inordinate profits received by energy companies also found themselves in the Chancellor’s firing line. The Energy Profits Livy will rise by 10% from the 1st January 2023 to 35% and the investment allowance, other than expenditure on decarbonisation, will be reduced to 29%. A new Electricity Generator Levy will apply a 45% tax on any extraordinary returns seen from low-carbon UK electricity generation. 

Benefits and Pensions 

The announcements made in the Autumn Statement won’t cost us all, and there was some government spending announced. Rises in most means-tested benefits, such as universal credit and tax credits would go up in line with inflation. So those in receipt of universal and tax credits should see their payments rise by 10.1% in April. Furthermore, after months of speculation regarding whether the ‘triple lock’ on pensions should remain, the Chancellor confirmed that pensions would rise by 10.1% in line with other benefits. 



This was a budget that was largely taxed by stealth – changing very little and letting people’s exposure to tax gradually increase. There were no major announcements of changes to valuable tax reliefs such as the Enterprise Investment Scheme, Seed Enterprise Investment Scheme, or Business Asset Disposal Relief and the rates of capital gains tax on non-residential properties remains at 20%. Those who can approach their finances with a degree of flexibility have still got opportunities for tax efficiency.  Employee share incentive schemes were untouched and with changes in corporation tax and national insurance rates on the way, now is the time to review how you extract cash from your company, or even whether a company is the right vehicle for your business. Contact us to discuss the options available to you.

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