18 November 2022
After officially confirming that the UK is in a recession, the Chancellor announced that the UK Government will be introducing measures to promote “stability, growth and public services”.
Citing inflation as the enemy of stability, the Chancellor highlighted a package of measures intended to tackle inflation and reduce mortgage rates by “asking for more from those who have more”.
Highlights for individuals:
- From 6 April 2023, the income tax additional rate threshold (the 45p rate) will be lowered from £150,000 to £125,140 meaning those who earn over £150,000 will pay over £1,200 more income tax each year.
- Income tax personal allowance, higher rate thresholds and National Insurance thresholds will be frozen until 2028.
- The Inheritance Tax nil rate band and residence nil-rate band will also be frozen until 2028.
- Dividend Allowance will be reduced from £2,000 to £1,000 from April 2023 and down again to £500 from April 2024.
- The Capital Gains Tax Annual Exempt Amount will be reduced from £12,600 to £6,000 from April 2023 and down to £3,000 from April 2024.
- The Stamp Duty Land Tax threshold increase announced in September 2022 will cease on 31 March 2025.
- Electric vehicles will no longer be exempt from road tax from April 2025.
- Married Couples and Blind Persons allowances will increase by 10.1% in April 2023.
Highlights for businesses:
- Corporation tax will increase to 25% for companies with profits over £250,000 from April 2023, as planned.
- The employers National Insurance Contribution threshold of £9,100 will be fixed until 2028, and the Employment Allowance is fixed at a higher rate of £5,000.
- The Annual Investment Allowance is to be fixed at a permanent level of £1 million from April 2023.
- Diverted Profits tax will increase in April 2023 to 31% to ensure there is a suitable deterrent from diverting profits overseas.
- The VAT registration threshold will be maintained until March 2026.
- Research & Development Expenditure Credit (RDEC) will increase from 13% to 20% from 1 April 2023. The SME additional deduction will decrease from 130% to 86% and the SME credit rate will decrease from 14.5% to 10% from the same date
- An increase in the Energy Profits Levy from 25% to 35% from the start of 2023 until March 2028. There will be a 45% Electricity Generator Levy applied on the extraordinary returns of electricity generators.
- The OECD Pillar 2 rules will be implemented, delivering a global corporate tax rate of 15% on multi-national enterprises, in each of the jurisdictions they operate.
The Chancellor emphasised the government’s focus on growth in energy, infrastructure and innovation.
Points to note for each area include:
- Energy: it was announced that the Government will proceed with the nuclear power plant at Sizewell C in Suffolk. The Government is also seeking to reduce energy consumption from buildings by 15% by 2030, announcing an “energy efficiency” package of £6bn from 2025, in addition to the £6.6bn already budgeted.
- Infrastructure: the capital budget for infrastructure will be maintained for the next two years. The Government has also committed to the Northern Powerhouse Rail, HS2 Manchester, East West Rail, New Hospitals programme and Gigabit rollout projects with over £600bn of investment in UK infrastructure over the next five years.
- Innovation: the Chancellor advised the Government will be amending EU regulations in target growth industries including digital technology, life sciences, green industries, financial services and advanced manufacturing. There will also be competition reforms to improve the competitive pressure to innovate. Additionally, import tariffs are to be removed from over 100 specified goods.
Advising that the Government will increase public spending, albeit slower than the rate of economic growth, highlights from this segment of the Chancellor’s statement included:
- DWP: following a sharp increase in economically inactive working age adults (up 630,000 since the start of the pandemic), there will be a thorough review of issues holding back workforce participation, plus an investment of £280m in the DWP to tackle benefit fraud.
- Defence: an increase in defence spending, subject to a review of the UK’s national and international security policy, but no increase in overseas aid.
- Education: the implementation of a skills reforms programme, in addition to an extra £2.3bn investment in schools per annum, from 2023.
- Healthcare: the increase of the NHS budget in each of the next two years by £3.3bn, plus an additional £1bn for adult social care next year, with an additional £1.7bn the year after.
Cost of Living Crisis
Lastly, the Chancellor turned to the cost of living crisis, particularly help for those most in need. It was announced that the energy bill relief plan will remain until March 2023. In April, the energy price guarantee will continue for a further 12 months, at a rate of £3,000.
In the new year, additional cost of living support is available for the most vulnerable, with £900 going to households on means-tested benefits, £300 to pensioner households, and £150 for individuals on disability benefits. A further £1bn is to be made available for local authorities under the household support fund.
In April 2023, social housing rent increases will be capped at 7% and the National Living Wage is to be increased to £10.42 per hour, up 9.7%. The benefit cap and state pension credits will be increased in line with inflation, up 10.1%.
Please contact the Birketts Tax Team if you would like to discuss any of these issues in more detail.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at November 2022.