He officially announced what we already knew was coming: We are in a recession. Chancellor Jeremy Hunt has announced in the Autumn Statement – a £55 billion package of tax increases and spending cuts.
Nearly all of the “growth plans” introduced by former Chancellor Kwasi Kwarteng in the mini-budget of 23 September 2022 had already been reversed. Hunt says that his measures are an attempt to protect the poorest and most vulnerable households from the brunt of the economic downturn and increased expenses. High inflation and steep borrowing costs have contributed to a considerable gap between the funds the government receives in revenue and its spending.
In a statement that is unlikely to create optimism from the general public, he followed the Autumn financial statement with the phrase ‘the government can’t do everything’. Hunt maintains that the government is doing their best to make the incoming recession shorter and shallower than it otherwise would have been.
He is prioritising economic stability to ensure that national debt falls as a percentage of gross domestic product (GDP) within five years.
As a business owner here’s everything you need to know from Jeremy Hunt’s Autumn Statement…
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Stark Statistics
The UK GDP is not set to reach pre-pandemic levels until the close of 2024. Most other G7 economies are already back to where they were before Covid hit. Households in Britain, however, are facing the worst fall in living standards since the 1950s.
The public spending is being put on hold until after the general election in 2024. Huge increases in taxes, and a freeze in national insurance thresholds for businesses, will start in April 2023.
Difficult Times for Middle England
Chancellor Jeremy Hunt has put off £30 billion worth of spending cuts until after the next election. People have criticised this tactical move, but few are surprised by it.
The tax rises will include a six-year freeze on income tax thresholds, meaning more than six million people will be dragged into higher rates. When the Tories came into power 12 years ago, 6% cent of people were higher-rate taxpayers. After Hunt’s changes, 14% of people will be higher-rate taxpayers, which will affect 250,000 people and their families.
Calculations show that middle-earning families will be nearly £20,000 worse off over the next six years, thanks to the Autumn statement.
The Autumn Statement Broken Down
Personal Taxes
- Income and inheritance tax thresholds will be frozen for another two years—until 2028.
- The dividend allowance will be cut from £2,000 to £1,000 in 2023 and then to £500 from April 2024.
- The annual exempt amount for capital gains tax will be cut from £12,300 to £6,000 in 2023 and then to £3,000 from April 2024.
- The threshold for the 45p additional rate of tax will be cut from £150,000 to £125,140.
Business Taxes
- Windfall tax on major oil and gas producers will be raised to 35% from 25%. Additionally, a new, temporary Energy Generator Levy will be applied to the returns being made by energy generators.
- The employment allowance will be retained at its new, higher level of £5,000 until March 2026.
- Business rates multipliers will be frozen in 2023-24; relief for retail, hospitality and leisure sectors will be extended. Furthermore, additional support will be provided for small businesses. These specific measures amount to a £13.6 tax cut for businesses over the next five years.
- Significant changes to Research & Development Tax Relief Rates – “large company” scheme rate under the – the R&D expenditure credit or RDEC scheme – will increase from 13% to 20% from 1 April 2023. This means companies that claim under this scheme will get a higher above-the-line credit in respect of their qualifying expenditure. However the SME scheme is being significantly reduced. The net value of an R&D claim by an SME reduces from 24.7% to 21.5% for a profit-making SME, and from 33.35% to 18.6% for those making significant losses.
Health and Education
- Adult social care will be allocated £2.8 billion in funding over the next two years to help free up hospital beds.
- The NHS budget will increase by an extra £3.3 billion in each of the next two years.
- Core schools’ budgets will increase by an extra £2.3 billion per year from 2023-25.
Overall, Hunt confirmed that public spending will continue to grow, albeit more slowly than the growth in the economy.
Cost-of-Living Support
- The government’s Energy Price Guarantee will increase in April from £2,500 to £3,000.
- New cost-of-living payments will be introduced: £900 to households on means-tested benefits, £300 to pensioner households and £150 to individuals on disability benefits.
- The “national living wage” will rise to £10.42 an hour next year beginning in April (a 9.7% increase).
- Benefits, including Pension Credit, will rise 10.1%, in line with September’s inflation figure.
Impact on the Economy
The government’s Autumn Statement has been independently verified by The Office for Budget Responsibility (OBR), which predicts that inflation will decline to 7.4% by the middle of next year in response to the measures. However, the OBR has cautioned that the UK is already technically in a recession, and the economy is expected to contract 1.4% in 2023.
Hunt not doing enough for small businesses
The proposals set out in the government’s Autumn Statement aim to tackle the cost-of-living crisis and rebuild the economy, focusing on three main pillars: stability, growth and public services. Despite Jeremy Hunt’s wish to ‘turn Britain into the world’s next Silicon Valley, the autumn statement gave us little reason to believe Hunt is championing small or growing businesses.
He believes that investing in the UK’s high-tech industries is the key to economic recovery. Yet the Federation of Small Businesses accused the chancellor of an “unprovoked attack” on smaller firms after he reformed research and development tax credits.
The tax incentive schemes encourages companies to invest in tech and innovation. However it was restructured with benefits still in place for larger companies. The Treasury asserted that smaller businesses had submitted spurious claims.
There are 4.1 million startups, early-stage and ‘micro-businesses’, often declared by politicians as the ‘backbone of the economy but rarely seen as a priority by the government. Demonstrated by the fact that “Minister of Small Business” has been removed as a dedicated post in recent years. Those operating small businesses are facing more challenges than ever, from rising energy prices to paying higher wages during a cost-of-living crisis.
One positive seems is Hunt’s decision not to impose an online sales tax. The idea was introduced as a way to tackle large corporations, but small online business owners would have likely bore the brunt of it.
Journalists and commentators have said that they were disappointed that more wasn’t done to help small businesses deal with a hard winter ahead. One idea floated was seeing governments being open to working with private-sector partners to help encourage entrepreneurial training.
Depending on their sector and activities, businesses will be affected in different ways over the coming years by the announcements. According to Hunt, his plan should “lead to a shallower downturn; lower energy bills; higher long-term growth; and a stronger NHS and education system.” We can only hope that this is the case.