The Chancellor of the Exchequer, Jeremy Hunt, warned of ‘real challenges’ for families as he revealed his Autumn Statement.
In a muted address to the House of Commons, Mr Hunt dismantled much of the framework of the mini budget created by his predecessor, Kwasi Kwarteng. Instead, MPs heard that his plan would curb inflation and put the nation’s finances on a more stable footing.
The most significant impact on living standards is likely to come from a freeze to tax thresholds until April 2028, and an extension of the household energy price cap but at a less generous rate. Family budgets will also be hit by the chancellor’s decision to allow local councils to scrap referendums before they can hike council tax more than 2 percent. The Office for Budget Responsibility (OBR) said: ‘This change is expected to yield £4.8billion a year by 2027-28, equivalent to increasing the average Band D council tax bill in England by around £250 (11 per cent) in that year.’
Despite the squeeze, there was some good news for the NHS, education and the National Minimum Wage. The health service will receive an extra 3.3 billion a year for the next two years, with funding for schools set to increase by 2.3 billion a year in the same time period. Meanwhile, the minimum wage will be boosted by 92 pence from £9.50 for people over 23 years of age to £10.42 from April next year. Mr Hunt has also opted to increase the windfall tax levy on oil and gas giants in a bid to tackle the huge increase in energy profits at a time of high demand.
Labour’s Shadow chancellor Rachel Reeves accused the Conservatives of creating a ‘raft of stealth taxes taking billions of pounds from ordinary working people.’ But Mr Hunt said that the plan ‘reflects British values’ and also ‘leads to a shallower downturn; lower energy bills; higher long-term growth; and a stronger NHS and education system.’
What Does the Autumn Statement Mean for Me?
At the moment the government gives workers who earn below a certain amount per year a tax-free allowance. This is the amount of money that working people can earn before they are taxed. The chancellor has frozen this ‘personal tax allowance’ at £12,570, after which people are taxed at 20 percent of their incomes, unless they earn more than £50,270 a year – although the bands are different in Scotland.
The decision to freeze the bands until 2028 means that the tax free allowance will not rise in line with prices, and any increase in pay is likely to see a greater share of workers’ incomes taxed.
For low income workers employed in sectors such as cleaning, social care and maintenance, rises in wages to reflect cost of living pressures could drag them over the threshold and into tax for the first time. In the same way, middle-income office workers on nearly £50,000 will be pushed into the higher tax band of 40 percent if employers increase their salaries above the £50,270 threshold.
Elsewhere, energy prices – a major influence on household spending power – will continue to be capped at £2,500 over the winter, but the energy cap (a cap on the unit price of electricity, not a cap on the total cost of bills) will rise to £3,000 from April 2023.