Following the Autumn Statement, chancellor Jeremy Hunt has defended the raft of measures within, referring to them as “balanced” in the face of criticism from think tanks.
Hunt insisted that difficult decisions had to be taken to temper inflation and that it was fair of the government to ensure that “people who have more…contribute more”.
The chancellor also defended the manner in which the Autumn Statement will impact those in the middle, explaining that simply focusing on taxing the rich would not raise enough government revenue.
The top band of income tax - the 45 per cent additional rate – has been adjusted and will now start on earnings of over £125,140, rather than £150,000.
Meanwhile, tax thresholds and personal allowances have been frozen until April 2028, which will see millions pay more in tax between now and then.
Hunt has also increased the windfall tax on the profits of oil and gas firms from 25 per cent to 35 per cent, which is set to raise £55 billion between 2022 and 2028.
Think tanks such as The Resolution Foundation have warned that the “stealth taxes” in the fiscal package would squeeze people on middle incomes more than the wealthiest in the country and see them paying more as their wages go up.
The Institute for Fiscal Studies added that middle income earners who do earn too much to qualify for any targeted support for the vulnerable, but do not earn enough to be comfortable, would suffer the steepest drop in living standards as a result of the measures.
The country is already facing a record fall in living standards with inflation continuing to outstrip wage rises. The Office for Budget Responsibility [OBR] confirmed after the statement that the tax burden would stand at its highest since the end of the Second World War as a direct result of the Autumn Statement, with household incomes in real terms falling by seven per cent over the next 18 months with inflation and the higher tax burden factored in.
The Resolution Foundation welcomed the government’s decision to increase benefits and pensions in line with inflation but warned that scaling back energy bills support for all in April will leave households vulnerable as the energy price cap goes up again.
The Energy Price Guarantee has been extended for a further year beyond April, but the level of support will reduce. Vulnerable households will be awarded additional cost-of-living payments, with pensioners receiving £300 and benefit recipients being given £900. The UK minimum wage has also been increased for younger age groups and the over-23s.
A decision on fuel duty will be taken in the Spring 2023 Budget, but warnings from the OBR suggest that the tax could be increased by as much as 12 pence per litre.
Responding to the statement, Paul Johnson of the Institute for Fiscal Studies said that “the truth is, we just got a lot poorer”, adding that the country was in for a “long, hard, unpleasant journey” with high tax looking likely for the foreseeable future.
Johnson said: “This will hit everyone. But perhaps it will be those on middling sorts of incomes who feel the biggest hit”, pointing out that those on middle incomes won’t qualify for more targeted support.
The OBR has predicted that the ensuing recession will last for “just over a year”, forecasting that the economy will contract by 1.4 per cent next year before starting to grow again.
Hunt also said that the market shocks caused by the Liz Truss government’s mini-Budget were not the reason behind his raft of tax hikes and spending cuts, instead blaming the economic turmoil on rising energy prices and the conflict in Ukraine.
As well as targeted support for vulnerable households, the Autumn Statement did also include additional funding for schools, the NHS and social care over the next two years as he distanced himself and the package from suggestions that it signalled a return to austerity.
However, public services spending will rise more slowly than planned, with cuts in the pipeline for 2025 after the next general election. On top of that, Hunt has also delayed the planned £86,000 lifetime cap on personal social care contributions in England for a further two years, after it had been due to come into force in October next year. The chancellor referred to the move as a “source of great regret”.
Labour shadow chancellor Rachel Reeves was scathing in her response to the Autumn Statement, hitting out at the “stealth taxes” and insisting that decisions could have been “fairer”.
She accused Hunt of taking from “the pockets of the ordinary working man and woman” rather than not ending non-dom tax status.
Some Conservatives on the right of the party, including former cabinet minister Jacob Rees-Mogg, were also concerned around the strategy of hiking taxes during an economic downturn.
Image by Chris McAndrew on Wikimedia Commons
