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How things change in such a small amount of time. The mini-Budget, less than two months ago, promised wide ranging tax cuts for all. However, we know how that turned out.
Now, in Jeremy Hunt’s first Budget statement, he has not only reversed the tax cuts previously promised (although he’d already announced that), but he’s gone the other way and raised taxes, as he indicated he would have to do, to achieve his aims of ‘stability, growth and public services’.
Additional rate taxpayers, who had previously thought they were going to pay a maximum of 40% tax, will now pay 45% earlier, with the additional rate band decreasing from £150,000 to £125,140, with those earning above £150,000 paying an additional £1,230 in tax each year.
All other taxpayers see a freeze in the allowances and bands until 2028. These had already been announced as being frozen until 2026, but a further two years will see the bands remain the same for seven consecutive years. Given wage inflation is currently running at over 5%, this policy will bring more taxpayers into paying a higher rate of tax, despite their wages struggling to keep up with inflation.
Another band frozen is the employer national insurance threshold of £9,100, again until 2028. This is expected to generate up to £5.8 billion by 2027/28, and is a further tax cost on businesses, along with the previously announced increase in corporation tax to 25% for companies.
There had been fears that the rate of capital gains tax would be increased, but instead the Chancellor announced a reduction in the annual exemption from the current £12,300 to £6,000 in 2023/24 and then £3,000 in 2024/25. This is only expected to bring in additional £440 million each year, when fully implemented, so barely touches the sides of the £55 billion the Government needed to find.
Another allowance, and another cut, with the dividend allowance, £5,000 when first introduced, currently £2,000, to be decreased to £1,000 in 2023/24 and £500 in 2024/25. This is anticipated to generate up to £940 million each year, by 2027/28.
Whilst these all generate extra revenue for the Government, the hope of the Chancellor is that this will also help to drive down inflation, with him commenting that the OBR believes the actions taken will help see a sharp reduction in the inflation rate from the middle of 2023.
The biggest single revenue raiser was a windfall tax on energy providers, increasing it to 35% until 2028 and a 45% rate for electricity generators. At its peak, this is estimated to raise £7 billion per year.
In an unexpected move, the Chancellor has rebalanced the reliefs available for research and development, with a reduction in relief for small and medium sized business and an increase for larger businesses. Unsurprisingly, overall, that rebalancing sees the Exchequer taking its share with it generating up to £1.3 billion per year by 2027/28.
Despite the renewed pledge to reduce UK carbon emissions by 68% by 2030, electric cars will no longer be exempt from vehicle excise duty in 2025/26.
For homebuyers, no immediate changes were made to stamp duty land tax, but the higher nil rate band of £250,000 is to end on 31 March 2025.
With the Chancellor announcing that the UK is now in recession, and predicted contraction of 2.1%, before growth returns in early 2024, the start of his statement had very little to smile about.
He then moved onto spending plans. The NHS and schools were protected, with an extra £3.3 billion in each of the next two years for the former and £2.3 billion for the latter. Other departments fared less well with 1% capped increases and the Chancellor requesting ‘Scandinavian quality with Singaporean efficiency’.
Support was then confirmed in a number of areas.
To assist with the cost of living crisis, a range of annual packages from £150 for those on disability allowances, to £900 for those on means tested benefits, will be available for 2023/24. The energy price guarantee is to be extended until 31 March 2024, but with a higher average price of £3,000 (up from £2,500), whilst the benefit cap will rise by 10.1%.
Those on lower wages received positive news that the national living wage is rising by 9.7% to £10.42 per hour, whilst pensioners will be raising a glass to the Chancellor as he confirmed the commitment to the triple lock, ensuring state pension will rise in line with inflation from April 2023.
A significant proportion of the inflation rate is down to energy prices, so the Chancellor was keen to commit to the development of the UK’s first nuclear power plant for thirty years, at Sizewell C, in an attempt to provide more independence for the UK’s energy supply.
So, the Chancellor’s going on a tax hunt; should we be scared? That really depends on whether the measures announced have the desired effect on inflation, economic growth and the UK’s debt levels. If not, this may just be the beginning.
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