Taxes and pensions rise as Hunt hits high earners
Chancellor Jeremy Hunt today froze most income tax bands, announced a package of business rates support to ease rising costs and confirmed the biggest ever rise in the state pension.
He pumped billions into the NHS and social care, and announced a record increase in the national living wage to help the low paid.
Mr Hunt said he would stick to the triple lock for pensions will mean the state pension rising by 10.1% in the new year.
In order to pay for his support measures and prepare the country for growth he froze a range of income tax and inheritance tax allowances and hiked the windfall tax on energy companies that will raise £25bn.
Income tax bands in England, Wales and Northern Ireland will remain in place until 2028 and tax at 45p will now be paid when earnings hit £125,140 rather than £150,000.
“Those earning £150,000 or more will pay just over £1,200 more a year,” he said.
As tax band powers are devolved, only the freezing of the tax-free personal allowance will apply to earned income in Scotland unless the interim Finance Secretary John Swinney takes similar action in his 15 December Budget. The changes will apply to interest income for all UK taxpayers.
Sean Cockburn, chair of the Chartered Institute of Taxation’s Scottish Technical Committee, said: “Even in the absence of a Scottish response next month, those with earnings above £125,140 and under £150,000 would still pay up to £1,425.80 more than someone earning the same salary south of the border as a result of tax devolution.
“This is less than the £2,669 difference that currently exists but is unlikely to sit well with the Scottish Government’s progressive approach to taxation, making it likely we will see some sort of reaction in December.”
Under the plans announced for England and Wales, the average family is likely to be more than £800 a year worse off.
The household energy price cap is extended for one year beyond April but made less generous, with typical bills capped at £3,000 a year instead of £2,500.
Mr Hunt halved the capital gains tax annual exempt amount from its current level of £12,300 to £6,000 from April next year. He also announced a further future cut, halving it again from April 2023/24 to £3,000.
He halved the dividend allowance to £1,000 next tax year and just £500 the year after.
Chris Springett, tax partner at wealth management and professional services firm Evelyn Partners, said: “This is a blow to investors who hold assets outside of ISAs and to retirees who rely on dividend income to supplement their pensions.”
David Alexander, chief executive of lettings agent DJ Alexander Scotland, said: “The expected reduction in exemption rates for capital gains tax (CGT) has been confirmed and for landlords, property investors, and second homeowners there is now an increasing disincentive to invest in housing.”
Mr Cockburn of the CIOT said: “Both these changes [capital gains and dividend allowances] will also make the system more complicated. More people will be required to report gains and pay Capital Gains Tax. Scottish taxpayers with capital gains and sources of income taxable at both Scottish and UK rates face multiple calculations and a need to ensure they are complying with the correct tax regime”.
The employment allowance will be retained at a higher level of £5,000 until March 2026. It means 40% of businesses will pay no national insurance contributions.
The national living wage will rise from £9.50 to £10.42 per hour, benefiting two million low paid workers will see a £1,600 uplift in their annual earnings.
The NHS and social care budget is increased by £8bn and Mr Hunt said the government would invest £2.3 billion into education, also devolved powers.
The Northern Powerhouse rail, the HS2 and the East West Rail will all go ahead as planned.
The stamp duty cuts in England, announced in the mini-budget, will remain in place, but only until 31 March 2025.
As forecast, electric vehicles will not be exempt from vehicle excise duties from April 2025. The benefit in kind rates will also increase for electric company cars from the same date at an additional 1% per year to 2027/28.
The Scottish Government will receive £1.5bn in Barnett Consequentials. Wales will receive £1.2bn and Northern Ireland £650m.
UK in recession
The package was announced alongside a forecast from the Office for Budget Responsibility that the economy is already in recession and will shrink by 1.4% next year.
The OBR predicts growth for this year overall of 4.2%, but size of the economy will shrink by 1.4% in 2023 Growth of 1.3%, 2.6%, and 2.7% is predicted for 2024, 2025 and 2026
Inflation is predicted to be 9.1% this year and 7.4% next year and unemployment is expected to rise from 3.6% to 4.9% in 2024.
Mr Hunt said taking “difficult decisions” would mean a shallower downturn.
He said the government’s priorities were “stability, growth and public services” and his plan was to build a “high wage, high skilled” economy.
He said that the Office for Budget Responsibility had confirmed global factors are the primary cause of current inflation.
Most countries are dealing with the fallout of the pandemic, and this has been worsened by the energy crisis linked to the war in Ukraine, he said.
“Anyone who says there are easy answers is not being straight with the British people,” he said.