Chancellor Jeremy Hunt has delivered what he called a “balanced path to stability” which involves “taking difficult decisions”.
As part of his Autumn Statement, he told MPs: “Anyone who says there are easy answers is not being straight with the British people: some argue for spending cuts, but that would not be compatible with high-quality public services.
“Others say savings should be found by increasing taxes, but Conservatives know that high tax economies damage enterprise and erode freedom.
“We want low taxes and sound money, but sound money has to come first, because inflation eats away at the pound in people’s pockets even more insidiously than taxes.
“So, with just under half of the £55bn consolidation coming from tax, and just over half from spending, this is a balanced plan for stability.”
Hunt said his decisions lead to a “substantial tax increase” but said he was not raising headline rates of taxation, adding tax as a percentage of GDP will increase by 1% over the next five years.
On personal taxes, he said he would reduce the threshold at which the 45p rate becomes payable from £150,000 to £125,140.
He said: “Those earning £150,000 or more will pay just over £1,200 more a year.”
Hunt went on: “We are also taking difficult decisions on tax-free allowances - I am maintaining at current levels the income tax personal allowance, higher rate threshold, main national insurance thresholds and the inheritance tax thresholds for a further two years taking us to April 2028.”
He said he would also reform allowances on unearned income, noting: “The dividend allowance will be cut from £2,000 to £1,000 next year and then to £500 from April 2024.
“The annual exempt amount for capital gains tax will be cut from £12,300 to £6,000 next year and then to £3,000 from April 2024 - these changes still leave us with more generous allowances overall than countries like Germany, Ireland, France, and Canada.”
On business rates, Hunt said bills should “accurately reflect market values so we will proceed with the revaluation of business properties from April 2023”.
He added: “But I will soften the blow on businesses with a nearly £14bn tax cut over the next five years - nearly two-thirds of properties will not pay a penny more next year and thousands of pubs, restaurants and small high street shops will benefit.”
Hunt said there will be a new UK Government-funded transitional relief scheme.
The stamp duty cuts announced in the mini-budget will remain in place, but only until 31 March 2025.
The Chancellor told the Commons: “Housing market activity is expected to slow over the next two years, so the stamp duty cuts announced in the mini-budget will remain in place but only until 31 March 2025.
“After that, I will sunset the measure, creating an incentive to support the housing market and all the jobs associated with it by boosting transactions during the period the economy most needs it.”
On business taxes, Hunt announced: “While I have decided to freeze the Employers NICs threshold until April 2028, we will retain the Employment Allowance at its new, higher level of £5,000.
“40% of all businesses will still pay no NICs at all.
“The VAT registration threshold is already more than twice as high as the EU and OECD averages - I will maintain it at that level until March 2026.
“My right honourable friend the Prime Minister successfully negotiated a landmark international tax deal to make sure multinational corporations - including big tech companies - pay the right tax in the countries where they operate.
“I will implement these reforms, making sure the UK gets our fair share; alongside further measures to tackle tax avoidance and evasion, this will raise an additional £2.8bn by 2027-28.”
The Chancellor also said he will increase the Energy Profits Levy from 25% to 35%.
“I have no objection to windfall taxes, if they are genuinely about windfall profits caused by unexpected increases in energy prices.
“But any such tax should be temporary, not deter investment and recognise the cyclical nature of many energy businesses - so taking account of this, I have decided that from January 1st until March 2028 we will increase the Energy Profits Levy from 25% to 35%.”
On a windfall tax on electricity generators, he said: “The structure of our energy market also creates windfall profits for low-carbon electricity generation so, from January 1st, we have also decided to introduce a new, temporary 45% levy on electricity generators. Together these taxes raise £14bn next year.”
The UK remains “fully committed” to the Glasgow Climate Pact agreed at COP26, Hunt noted in his speech.
“The United Kingdom has also been a global leader on climate change, cutting emissions by more than any other G20 country.
“But with the existential vulnerability we face, now would be the wrong time to step back from our international climate responsibilities.
“So I can confirm that despite the economic pressures we face, we remain fully committed to the historic Glasgow Climate Pact agreed at COP26, including a 68% reduction in our emissions by 2030.”
Hunt said by 2030 the government wants to reduce energy consumption from buildings and industry by 15%, adding this could - according to today’s prices - save £28bn from our national energy bill or £450 off the average household bill.
From 2025, a further £6bn will be invested to help with energy efficiency and Business Secretary Grant Shapps will launch an energy efficiency taskforce shortly.
As a result of today’s tax and spending decisions, the Scottish Government will receive around an additional £1.5bn over 2023-24 and 2024-25.
The Chancellor also restated Westminster's plan to work with Holyrood on options to improve the A75, in line with the findings from the Union Connectivity Review.
He also confirmed that funding for the UK’s nine Catapult innovation centres will increase by 35% compared to the last funding cycle - which includes the offshore renewable catapult in Glasgow.
The Government will continue the Energy Price Guarantee for a further 12 months at a higher level of £3,000 per year for the average household, the Chancellor said.
“This winter, we will stick with the plan to spend £55bn to help households and businesses with their energy bills – one of the largest support plans in Europe.
“From April, we will continue the Energy Price Guarantee for a further 12 months at a higher level of £3,000 per year for the average household.
“With prices forecast to remain elevated through next year, this will still mean an average of £500 support for every household.”
“At the same time, for the most vulnerable we will introduce additional cost-of-living payments next year, of £900 to households on means-tested benefits; £300 to pensioner households; and £150 for individuals on disability benefit.
“We will also provide an additional £1bn of funding to enable a further 12-month extension to the Household Support Fund, helping local authorities to assist those who might otherwise fall through the cracks.
“And for those households who use alternative fuels such as heating oil and LPG to heat their homes, I am today doubling the amount of support from £100 to £200, which will be delivered as soon as possible this winter.
“Before the end of this year, we will also bring forward a new targeted approach to support businesses from next April.”
The national living wage will be increased to £10.42 from April 2023, the Chancellor announced.
“I am accepting the recommendation of the Low Pay Commission to increase it next year by 9.7% - that means, from April 2023, the hourly rate will be £10.42 which represents an annual pay rise worth over £1,600 to a full time worker.
“It is expected to benefit over two million of the lowest paid workers in the country and keeps us on track for our target to reach two-thirds of median earnings by 2024,” Hunt stated.
He also confirmed benefits and the state pensions will rise in line with inflation and that the pension credit will increase by 10.1%. “Today I also commit to uprate such benefits by inflation with an increase of 10.1%, that is an expensive commitment costing £11 billion.
“But it means 10 million working-age families will see a much-needed increase next year.
“On average, a family on universal credit will benefit next year by around £600 - and to increase the number of households who can benefit from this decision I will also increase the benefit cap with inflation next year.”
The Office for Budget Responsibility (OBR) confirmed “global factors are the primary cause of current inflation”, Hunt said as he began his autumn statement.
“Most countries are still dealing with the fallout from a once-in-a-century pandemic, the furlough scheme, the vaccine rollout, and the response of the NHS did our country proud – but they all have to be paid for.
“The lasting impact on supply chains has made goods more expensive and fuelled inflation, this has been worsened by a made in Russia energy crisis.”
The OBR forecast is the UK’s inflation rate will be 9.1% this year and 7.4% next year.
Hunt said of the predictions: “They confirm that our actions today help inflation to fall sharply from the middle of next year, they also judge that the UK, like other countries, is now in recession.
“Overall this year, the economy is still forecast to grow by 4.2%, GDP then falls in 2023 by 1.4%, before rising by 1.3%, 2.6%, and 2.7% in the following three years.
“The OBR says higher energy prices explain the majority of the downward revision in cumulative growth since March; they also expect a rise in unemployment from 3.6% today to 4.9% in 2024 before falling to 4.1%.”
He noted “today’s decisions mean that over the next five years, borrowing is more than halved”, adding: “This year, we are forecast to borrow 7.1% of GDP or £177bn; next year, 5.5% of GDP or £140bn; then by 2027-28, it falls to 2.4% of GDP or £69bn.
“As a result, underlying debt as a percentage of GDP starts to fall from a peak of 97.6% of GDP in 2025-26 to 97.3% in 2027-28.”
Hunt announced two new fiscal rules, telling the Commons: “The first is that underlying debt must fall as a percentage of GDP by the fifth year of a rolling five-year period.
“The second, that public sector borrowing, over the same period, must be below 3% of GDP.”
The Chancellor went on: “Today’s statement delivers a consolidation of £55bn and means inflation and interest rates end up significantly lower.
“We achieve this in a balanced way: in the short term, as growth slows and unemployment rises, we will use fiscal policy to support the economy.”
He said the OBR confirms “that because of our plans, the recession is shallower, and inflation is reduced”, adding: “Unemployment is also lower with about 70,000 jobs protected as a result of our decisions today.
“Then, once growth returns, we increase the pace of consolidation to get debt falling - this further reduces the pressure on the bank to raise interest rates because as Conservatives we do not leave our debts to the next generation.”
Hunt said the Bank of England has done an “outstanding job” since its independence, adding it has “my wholehearted support in its mission to defeat inflation and I today confirm we will not change its remit”.
He told the Commons: “But we need fiscal and monetary policy to work together – and that means the government and the bank working in lockstep.“
His package is in stark contrast to his predecessor Kwasi Kwarteng’s ill-fated plan for £45bn of tax cuts, less than two months ago, which spooked the markets, pushed up the cost of borrowing and contributed to the downfall of Liz Truss’ short-lived administration.
Hunt said he could “understand the motivation” of Kwarteng’s mini-budget and he was “correct to identify growth as a priority”.
However, he added: “Unfunded tax cuts are as risky as unfunded spending which is why we reversed the planned measures quickly.
“And the OBR says today that the lower interest rates generated by the government’s actions are already benefitting our economy and public finances.
“But credibility cannot be taken for granted and yesterday’s inflation figures show we must continue a relentless fight to bring it down, including an important commitment to rebuild the public finances.”
Towards the end of his statement, Hunt drew upon former chancellor Nigel Lawson’s “big bang” of 1986 in a bid to deliver “smart regulatory reform” to spur investment.
Referencing the “Brexit freedoms”, he said by the end of next year the government will review and decide changes to EU regulations in five growth industries – named as digital technology, life sciences, green industries, financial services and advanced manufacturing.
“I have asked the Chief Scientific Adviser Sir Patrick Vallance… to lead new work on how we should change regulation to better support safe and fast introduction of new emerging technologies.”
He added the government will legislate to give the Digital Markets Unit new powers to challenge monopolies and increase the competitive pressure to innovate.
“To spur competition, I have listened to requests from businesses and I’m removing import tariffs on over 100 goods used by UK businesses in their production processes, from car seat parts to bicycle frames.
“I will also change our approach to investment zones which will now focus on leveraging our research strengths, to help build clusters for our new growth industries.”
The Chancellor also announced plans for an overhaul of Solvency II rules.
“I have also heard some speculation that we might cut the research and development budget today - I believe that would be a profound mistake.
“In our 2017 manifesto, we announced a target to invest 2.4% of our GDP in R&D and the latest ONS data suggests the UK is close to meeting that target.
“I want to go further, so today I protect our entire research budget and confirm that we will increase public funding for R&D to £20bn by 2024-5 as part of our mission to make the United Kingdom a science superpower.”
He added: “To further support investment across our economy, I can also announce we are publishing our decision on Solvency II, which will unlock tens of billions of pounds of investment for our growth-enhancing industries.”
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