In this article, we outline the key points from Thursday’s Autumn Budget.  Find out what’s changing and what it could mean for you.

Published: 19th April 2022

 
Following Truss’ disastrous mini-budget just eight weeks ago. Thursday’s Autumn Statement signalled a massive change in direction. Chancellor Jeremy Hunt claims his plan will ‘tackle the cost of living crisis and rebuild the economy’ but warned he had to take some ‘difficult decisions’.
 
He offered some protection for the most vulnerable from the cost of living crisis, with continued energy support, rises in benefits and pensions, and an increase in the minimum wage. But in order to reduce UK debt, measures included significant tax hikes and public spending cuts, totalling £55bn.
 
 

Key Points at a Glance

 
Tax changes
Income tax thresholds frozen until 2028 – millions of workers will have higher tax bills
Top 45% tax threshold lowered – highest earners to pay more
Tax-free allowances cut on dividends and capital gains – investors to pay more
Road tax on electric vehicles – from April 2025

Low Earners
Minimum wage increases
Pensions and benefits to keep pace with inflation

Help with cost of living
Energy bills support package continues, but at a lower level
New one-off payments for the most vulnerable

Housing – rent & mortgages
Social housing rental cap – to prevent predicted 11% increase in rent
Stamp duty holiday rather than permanent cut – higher stamp duty for homebuyers from 2025

Public services
Public spending slowdown, but more cash for NHS, social care and education

Business
Windfall tax on energy giants extended and increased
Business rates cut to support small businesses

Photo:  Chancellor Jeremy Hunt delivers the Autumn Budget – BBC News

The UK Economy – Forecasts from the Autumn Budget

 
The Office for Budget Responsibility (OBR) confirmed the UK is now officially in recession. Inflation reached a 41-year high of 11.1% in October (which is five times the Bank of England’s target rate). Rocketing energy and food prices have deepened the cost of living crisis. According to the OBR, inflation will start to fall from 9.1% this year to 7.4% next year. They also forecast that the economy will grow by 4.2% this year. It had grown by 7.5% in 2021, following a fall of 11% in 2020 during the first stage of the pandemic.
 
Living standards will fall
Although the Autumn Budget targets support for the most vulnerable on the lowest incomes, much of the support won’t come into force until the new tax year (April 23). Many people will still struggle with the soaring cost of living, energy bills and now higher tax. The OBR forecasts that real household disposable income will fall by 7% over next two years, which is the biggest drop in living standards since records began in the 1950’s.

Key Financial Developments

Tax Changes

Reduced allowances and frozen thresholds will mean higher tax bills for millions of people over the next few years.
 

Frozen tax thresholds

This April saw the start of a four-year freeze on income tax thresholds – the amount at which you start paying tax, or move into the higher 40% tax band. And the Chancellor has now prolonged this for a further two years, until 2028.
 
What is the effect of freezing tax thresholds?
Freezing allowances and thresholds is known as a ‘stealth tax’ – it increases government revenue without explicitly raising tax rates. As wages increase over time with inflation, if you keep the threshold the same, millions of people will pay more tax as they move above tax-free allowances or into higher tax bands.

Example: If you earn £12,500 now, you don’t pay tax, because the tax-free Personal Allowance is £12,570. But wages are rising, so if you earn £13000 next year, you will pay 20% basic rate tax on some of your income (£430 x 20% = £86 tax).

Top 45% tax threshold lowered

The Chancellor has lowered the level at which people start paying the 45% top rate of tax. From April 2023, that will apply to earnings above £125,140 instead of £150,000. This measure drags an additional 250,000 people into the top tax bracket, and anyone earning £150,000 or more will pay an extra £1,200 a year in tax.

April 2023 tax changes at a glance

The tax rates and bands apply to England, Wales and Northern Ireland. Scotland has a slightly different tax system.
Find out more about income tax here.

Tax-free allowances on dividends & capital gains cut

Dividends allowance
Dividends are funds that a company has earned and pays out to its shareholders. Investors will pay more tax from April 2023, when the annual dividend allowance is halved from £2,000 to £1,000, and then cut to £500 the following year.
NB: You won’t pay tax on earnings from tax-free investments such as stocks and shares ISAs. Also, if you own your own company and pay yourself in dividends, any income that falls within your Personal Allowance does not incur tax.

 
Capital gains allowance
Capital gains tax is charged on profits from selling an asset such as shares or a second home. The annual amount exempt from tax will be cut from £12,300 to £6,000 in April 2023, and then to £3,000 from April 2024.

Electric Vehicles tax

From April 2025 electric vehicles will no longer be exempt from road tax. (Funds raised pay for the building and maintenance of roads.) The Office for Budget Responsibility forecasts half of all new vehicles will be electric by 2025. However, motoring and environmental groups are concerned this measure will diminish the financial incentive of switching to EVs.

Council tax up

Local authorities will be allowed to charge up to 5% more council tax from next April. The average household bill could exceed £2,000 a year for the first time.

National Insurance

National Insurance Contributions (NICs) help fund health and social care. One of the few enduring measures from the Truss mini-budget is the change to National Insurance: the raising of the threshold when workers start paying NICs, and the reversal of April’s rise in rates.
 
So, from 6 November, NICs returned to:
12% for employees earning £12,570 to just over £50,000 a year
2% on income above that level
 
The combination of the higher threshold and reduction in rates mean NICs have come down by about £500 for the average worker. However, National Insurance thresholds will be frozen for a further two years until 2028, which means more people will pay NICs as wages rise.

Find out more about National Insurance here.
 

Low Earners

Minimum wage increases

By law, there is a minimum hourly rate that most employees should be paid, depending on their age and if they are an apprentice. The Government reviews minimum wage rates each year and they are usually updated in April.
 
The National Living Wage applies to workers aged 23 and over. It will rise from £9.50 an hour to £10.42, which equates to a pay rise of £1,600 per year for a full-time worker. (However, with inflation currently tracking 11.1%, this will not be sufficient to prevent a fall in living standards).
 

 

What is the National Living Wage?

The lowest wage that can legally be paid to employees aged 23+.
It is reviewed annually and is supposed to reflect the amount someone needs to earn to cover the basic costs of living and lead a decent life.

 

 
The National Minimum Wage also increases (for people who are above school leaving age but under 23, or an apprentice). All new rates are shown in the table below.

National Minimum Wage Rates from April 2023

Source: GOV.UK

 
Check here to see if you’re earning the legal minimum, or if you’re owed payments from past years.
Note most interns should be paid at least the minimum wage, whatever the length of your internship. If there are any problems, you should take it up with your employer in the first instance, and if it remains unresolved, get advice from Acas, or report it to HMRC, who will investigate.

Pensions & benefits keep pace with inflation

From April 2023, benefits including the state pension will be increased in line with September’s inflation rate (10.1%).
 
Pensions triple-lock protected
The pensions triple-lock guarantees an increase in state pensions in line with whichever of these three measures is highest: inflation, average earnings growth, or 2.5%. The triple-lock was suspended following the pandemic, but Hunt announced pensions will rise with inflation from April 2023.
The government is currently reviewing the state pension age, with an announcement expected early next year.

Help with the Cost of Living

Energy bills support package continues, but will be scaled back

The Energy Price Guarantee (EPG) was introduced in October to cushion the blow of massive hikes in gas and electricity prices. The EPG caps the price per unit that suppliers can charge customers, with the Government subsidising the remainder.
 
The EPG will be extended until the end of March 2024. However, from next April, the level of support will be scaled back considerably, allowing suppliers to increase their charges up to 20%.  As a result, the average household energy bill will be £3000 a year (compared to £2500 currently). Hunt says this still means an average of £500 government support for every household.

New cost of living support

As well as the Energy Price Guarantee, the Chancellor announced new one-off cost of living payments up to £1,350 for the most vulnerable households. This includes an extra £900 for people on benefits, £300 for pensioners and £150 for those on disability benefits. 

Housing – Rent & Mortgages

 
Following Truss’ mini budget, mortgage rates rocketed above 6% and lenders withdrew hundreds of mortgage products, making it very difficult for first-time buyers to get onto the housing ladder. It also impacted the rental market because of rising costs and higher mortgage rates for landlords, leading to soaring rents and a lack of supply of rental properties.

Social housing rental cap

The Chancellor announced some protection from the cost of living crisis for social housing tenants, through a 7% cap on rent increases in 2023-24. So, although rents may still go up, the increase will be less than current inflation, giving an average saving for tenants of £200 next year.

More homebuyers will pay stamp duty from 2025 

Stamp duty is a tax you have to pay when you purchase property or land above a certain value. (This applies to England and N. Ireland, as the system is slightly different in Scotland and Wales).
 
Hunt has reversed the cuts in stamp duty introduced in Truss’ mini-budget, but the changes won’t take effect until 2025. This move has effectively created a ‘stamp duty holiday’, likely to lead to a rush for homebuyers to beat the 2025 deadline when charges go back up.  This type of situation is never good for the stability of the housing market and leaves limited time for first-time buyers to save up for a deposit.
 
From 2025, homebuyers won’t pay any stamp duty on the first £125,000 of a property (current threshold is £250,000).
First-time buyers benefit from additional tax relief if the overall property price is below £500,000 (currently £625,000): they will pay no stamp duty on the first £300,000 (down from £425,000 currently). If first-time buyers purchase a property of a higher value, they will pay the standard stamp duty rates, as above.

Use the Government stamp duty calculator to calculate how much you need to pay.

Find out more about stamp duty here.

Public Services

 
There will be a slowdown on public spending, but an increase in the budget for health, social care and education over the next two years.
 

NHS

The Government is under pressure to take urgent action over the NHS, with prospects of an unprecedent nurses’ strike, public anger over waiting times, and shortages of doctors and nurses. An extra £3.3bn has been allocated for each of the next two years, with a focus on recruiting and retaining sufficient medical staff, and improving productivity.

Social care

The Chancellor said he wants to free up hospital beds by investing in social care, and consequently will increase funding for the sector by up to £2.8 bn next year and £4.7 bn the following year. However, he has postponed the implementation of a lifetime cap (of £85,000) on social care contributions for individuals, which was designed to protect people from the soaring costs of care.

Education

The Government promised to increase the schools budget, investing an extra £2.3bn a year for the next two years.

Environment

The Chancellor confirmed that, in spite of economic pressures, the Government remains fully committed to Cop26 goals, including 68% reduction in UK emissions by 2030.

Business News

Windfall Tax on energy giants

The windfall tax on energy giants has been extended and increased. From next year until March 2028, oil and gas companies will pay 35% on their profits (up from 25% currently). Hunt has also introduced a new temporary 45% windfall tax on the profits of electricity generators. Together these taxes are expected to bring in £14bn next year, to help fund the government energy support schemes.

Support for businesses

The Chancellor announced measures to support small businesses, such as limiting National Insurance liability, and bringing in £14bn business rates cuts over the next five years, which will benefit about 700,000 businesses including pubs, restaurants and shops.
 

What Does the Autumn Budget Mean for Your Finances & Where to Get Help

 
Use this income tax calculator to see how the tax changes will affect you.

Use this stamp duty calculator to calculate what you need to pay on a house purchase.

Find out what support is available for your energy bills.
If you are struggling to pay, you could contact your energy provider, local council or charities, as many have hardship funds available.
It’s also worth checking what benefits you may be entitled to: Benefits calculator
 
If you are having problems paying rent and bills, don’t delay seeking help.
Here are 2 good sources of free advice, including how to access support:
Citizen’s Advice
Shelter – rent, benefits & money problems
 

 
Sources:
ITV News – Eight Autumn Budget announcements set to affect the cost of living – & what was missing
The Guardian – Autumn statement 2022: key points at a glance
Money Saving Expert – Chancellor’s Autumn Statement 2022: Martin Lewis’ instant reaction to tax changes, state pension rises and further cost of living help
Money Week – Autumn Budget: what does it mean for your finances?