Out-Law Analysis | 17 Nov 2022 | 1:26 pm | 2 min. read
The delivery of the autumn statement by UK chancellor Jeremy Hunt on Thursday marks the start of a new period of fiscal restraint in the country. It will require businesses to think more creatively about how government can best support them and the sectors they operate in.
Over the past two and half years, businesses have grown accustomed to unprecedented state intervention to help them through economic headwinds, from the furlough scheme through Covid, to the energy bill relief scheme introduced to account for rising gas prices exacerbated by the war in Ukraine.
The result of the operation of such substantial government support schemes is a £55bn gap in the UK’s public finances. Previous prime minister Liz Truss, and her chancellor Kwasi Kwarteng, formulated a growth plan to close that gap, but uncertainty over how their tax cuts and spending plans were to be paid for spooked the financial markets and accelerated their departure from office. Now it is Hunt who is tasked with balancing the books and rebuilding the Conservative Party’s reputation for economic competence among voters.
Many of the measures announced were pre-briefed in an attempt to manage the reactions of the markets, businesses and the public. The chancellor was clear that taxes would be going up and spending cuts would be necessary.
Hunt confirmed that he will lower the threshold at which people start paying the 45% top rate of income tax to £125,140 from £150,000. The basic and higher rate income tax thresholds will be frozen until 2028 and the pensions triple lock will be protected. He also announced an extended freeze in the inheritance tax “nil-rate band” by two years to 2027/28 and cut the £12,300 annual tax-free allowance for capital gains tax to £6,000. Local authorities have also been empowered to raise council tax above 2% without need for a local referendum.
Hunt further confirmed a new 45% tax on the “excess returns” of electricity generators will be introduced and that the rate of the energy profits levy on oil and gas companies will increase from 25% to 35%. It has been estimated that those two measures combined will generate £14bn next year. Also on energy, the chancellor announced that the government will proceed with new nuclear power plant at Sizewell C and a further £6bn funding for energy efficiency from 2025. The Chancellor also announced a £13.6bn package of business rates support, despite a business rates revaluation proceeding in April 2023 as planned.
On top of those new tax measures, Hunt also announced that the ‘Energy Price Guarantee’ – the flagship policy of Liz Truss’ premiership – will continue until March 2024, however it will be raised by 20% meaning a typical household bill will cost £3,000. This move is designed to shield the public purse from footing the bill of further energy price hikes but is likely to concern consumers and businesses worried about their bills.
Alongside the autumn statement, the Office for Budget Responsibility (OBR) published a report that lays bare the fiscal challenges facing the chancellor. The OBR is projecting that the UK is now in recession, and that the UK economy will shrink by 1.4% in 2023, before growing by 1.3% in 2024, 2.6% in 2025 and 2.7% in 2026. The OBR also predict that inflation will be around 9.1% this year, then fall to 7.1% later next year.
While Hunt has already achieved some success in stabilising the financial markets, measures announced today will not alone remedy the UK’s economic woes – both he and prime minister Rishi Sunak have sought to prepare the public for more difficult times to come.
Hunt has maintained that “to achieve long-term, sustainable growth, we need to grip inflation, balance the books and get debt falling”. This can be read as a signal that the Covid-era days of close support to business are well and truly over. Organisations seeking the help of government should therefore think carefully about ways that their respective sectors can be supported in cost-effective ways through changes to policy or legislation. Businesses should then be prepared to articulate how these policies or changes to legislation may create departmental efficiencies for the government and improve the economy down the line.