Hunt cuts NICs, lifts pensions, freezes alcohol duty
Pensioners, hospitality outlets and the self-employed were among the big winners from Chancellor Jeremy Hunt as he unveiled a range of tax reliefs to help the economy and ease the cost of living.
National insurance contributions will be cut from 6 January by 2% for 27 million workers – saving £450 a year.
Class 2 contributions paid by the self-employed earning more than £12,570 will be scrapped, saving the average self-employed person £192 a year. Class four national insurance contributions charged on profits of between £12,570 and £50,270 will be cut to 8%, from 9%.
While these measures drew wide support, the decision to freeze income tax thresholds mean that millions of workers will suffer from ‘fiscal drag;’ as wage rises pulls them into higher tax bands.
The Office for Budget Responsibility estimates that four million people will be dragged into paying the 20p basic rate, with a further three million pulled into paying 40p tax and 400,000 more paying the top rate of 45p.
Mr Hunt honoured the government’s commitment to the pensions triple lock by raising the state pension from next April by 8.5% in line with wages growth in September. He said he will consult on giving people one pension pot for life. Benefits will increase next year by 6.7%, the inflation rate for September.
All alcohol duties are frozen until 1 August next year, a potential pointer to a general election next spring or early summer.
Mr Hunt also unlocked £20 billion of investment to tackle Britain’s low level of productivity which did not rely on additional borrowing.
He announced a NatWest retail share offer to sell off the taxpayers’ remaining 38.75% stake in what was formerly Royal Bank of Scotland following the bail-out in 2008. Referring to the British Gas privatisation campaign in the 1980s, he said it was ‘time to get Sid investing again’. See Comment
Calls for Scottish government action
There was further help on business rates for small firms, but only in England where he will extend the 75% discount on business rates of up to £110,000 for retail, hospitality and leisure businesses for another year.
The Chancellor said these measures will save the average independent shop over £20,000 and the average independent pub over £12,800 next year.
There was an immediate call from the retail and hospitality sectors in Scotland for the Scottish government to match the business rates benefit in the Scottish Budget on 19 December.
Mr Hunt will raise the number of houses being built and speed up the planning process, also for England, which will add to calls for Holyrood to follow suit.
His decision to freeze alcohol duties contrasts with the Scottish government’s plans to raise the minimum unit price of alcohol.
Scottish ministers will also need to address the differential income tax bands amid speculation that First Minister Humza Yousaf wants to introduce another tax band for higher earners. Those in Scotland earning more than £27,850 currently pays more in income tax than their counterparts south of the border.
Between £43,662 and £50,270, those working in Scotland also pay a marginal tax rate of 54% because NI thresholds align with the income tax rates set by the UK government. Mr Hunt’s cuts mean that will be reduced to 52% compared to 30% elsewhere in the UK.
Sean Cockburn, chairman of the Scottish technical committee at the Chartered Institute of Taxation, said: “The chancellor’s announcement has not addressed the specific anomaly that sees Scots with earnings between the Scottish and UK higher rate thresholds pay a higher marginal rate of tax.”
Business tax reliefs and other support
Among 110 measures to “help grow the economy” he announced £500 million to fund innovation centres “to make the UK an AI powerhouse”.
Bigger companies will benefit from full expensing – introduced as a temporary measure by Rishi Sunak during his time as Chancellor to offset investment against tax – is made permanent. For every million pounds a business invests in new equipment and expansion it will be able to claim £250,000 back in corporation tax payments. “This is the biggest ever boost for business investment in modern times,” Mr Hunt told MPs.
Financial incentives for Investment Zones and tax reliefs for freeports will be extended from five to 10 years. He is also introducing new measures to help with late payment of bills.
There will be £975m for aerospace firms, £520m for life sciences like medical research companies, and £960m for the new green industry firms.
“Taken together across our fastest-growing innovation sectors, this support for manufacturing alone will attract an estimated £2bn of additional investment a year over the next decade,” he said.
Economy and pay
He reminded the house that he and the Prime Minister had met their pledge to halve inflation within a year as the Office for Budget Responsibility forecast that the growth in prices will fall to 2.8% by the end of next year.
The economy is 1.8% higher than pre-pandemic levels, he said, but the OBR says growth has been downgraded from 1.8% next year to 0.7%.
As previously announced, the National Living Wage will increase by 10% from £10.42 to £11.44 an hour for those aged 21 and over. The increase is worth £1,800 a year for the average full time worker.
Labour’s shadow chancellor Rachel Reeves said: “Today’s 2p cut will not remotely compensate for the tax [increases] already put in place by this Conservative government.
“The fact is that taxes will be higher at the next election than they were at the last.”
She added: “What has been laid bare today is the full scale of the damage that this government has done to our economy over 13 years.”
Scotland’s deputy First Minister and Finance Secretary Shona Robison said: “Today’s Autumn Statement from the UK Government has delivered what is the worst case scenario for Scotland’s finances.
“Scotland needed a fair deal on investment for infrastructure, public services and pay deals – the UK Government has let Scotland down on every count.
“We needed investment in the services that people rely on and in infrastructure vital to the economy, but the Chancellor’s actions failed to live up to the challenges we are facing as a nation, while not doing enough to help those on the lowest incomes.
“The cut to National Insurance shows the UK Government has the wrong priorities at the wrong time, depriving public services of vital funding.”