Jeremy Hunt has delivered his long-trailed Autumn Statement, setting out tax rises and spending cuts in the wake of the disaster of “Trussonomics”. The Chancellor claimed the announcement was proof of “compassionate” government as he revealed pensions and benefits would rise in line with inflation (10.1 per cent).
But, as can be seen below, the budget documents are peppered with hidden nasties that will stretch household incomes more than at any point in recent history.
1. A record fall in living standards
Concealed in documents from the Office for Budget Responsibility (OBR) that accompanied the statement was the grim news that living standards will fall by 7 per cent in the next two years. This represents the worst performance since modern records began in 1956-57, and will wipe out the equivalent of eight years of household income growth.
The OBR said: “Over £100bn of additional fiscal support over the next two years cushions the blow of higher energy prices – but the economy still falls into recession and living standards fall 7 per cent over two years, wiping out eight years’ growth.”
Meanwhile, average real wages are expected to fall by 1.8 per cent this year and a further 2.2 per cent in 2023 as inflation continues to erode workers’ salaries. The OBR also forecasts that unemployment will rise by 505,000 from 1.2 million at present to 1.7 million in 2024-25.
2. Stealth taxes
Arguably the most painful part of the Autumn Statement was Hunt’s announcement that income tax thresholds would be frozen at their current rates, rather than rising in line with inflation. This means millions of people will pay more tax, with average earners expected to pay an additional £2,500 over six years.
The £12,570 income tax and National Insurance thresholds will remain in place until April 2028, raising around £5bn in annual revenue. Top earners also take a hit: it is estimated a quarter of a million more people will pay the 45p tax rate after the starting threshold was cut from £150,000 to £125,000, costing them an average of £580 a year.
3. Council tax shock
Hunt confirmed that local authorities will be allowed to raise council tax by almost 5 per cent without holding a local referendum. The cap is currently up to 2.99 per cent. This means millions of households in band D could be hit by a rise in their council tax bill of nearly £100 in April 2023 – and that amount could increase further in the years ahead. Average band D council tax bills are already £1,966 a year and this announcement means they are almost guaranteed to surpass £2,000 next year (a majority of authorities are already struggling financially).
Once all the tax rises in Hunt’s announcement are accounted for, the OBR estimates that the tax burden will reach its highest sustained level since the Second World War (37.1 per cent of GDP).
4. Tax cut for banks and no non-dom reform
Hunt slashed the tax surcharge on banks, OBR documents show, from 8 per cent to 3 per cent. It will come into effect next April. The cut also applies to profits up to £100m – the current threshold is £25m.
Treasury sources had suggested that the government was reviewing the non-dom tax status. The loophole, which Labour has pledged to abolish, allows someone who lives in the UK but has their permanent home outside the country to avoid paying UK tax on their foreign earnings. It has been suggested that scrapping non-dom status, which Rishi Sunak’s wife Akshata Murty previously benefited from, would have raised £3.2bn but Hunt decided against its reform.
Kwasi Kwarteng’s decision to lift the cap on bankers’ bonuses remains in place.
5. Energy bills to increase and Bulb bailout rises to £6.5bn
As expected, the government’s energy price guarantee will be reformed from April next year. The average annual household energy bill is expected to rise from £2,500 at present to an eye-watering £3,000.
Small print in the OBR report also confirms that the cost to the public purse of bailing out the failed energy supplier Bulb has ballooned to £6.5bn. The government had previously estimated the cost of rescuing the firm as £2.2bn. Bulb, which has around 1.5 million customers in the UK, collapsed in November last year and was put into a special government-handled administration.
[See also: The UK is facing a living standards catastrophe]