We explain how various measures in the Autumn Budget will impact your wallet.
As usual, ahead of today’s Budget some of the contents in chancellor Rishi Sunak’s briefcase had already been announced or leaked to the broadsheets.
This time around, however, it felt as though there was even more positive PR spin than usual, in an attempt to create a feel-good factor in the days running up to Sunak addressing the nation.
We already knew that there would a rise in the national living wage, the ending of the one-year pay freeze for public sector workers, more funding for the NHS and the building of additional new homes.
As announced in March’s Budget, personal tax thresholds will be frozen at their current levels until April 2026, with the personal allowance remaining at £12,570.
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Here, we round up the winners and losers from the Autumn Budget.
Workers: national living wage rise and boost for public sector
Announced ahead of the Budget was a rise in the national living wage from next April. It will rise from £8.91 per hour to £9.50, a 6.6% increase. The increase is twice the current rate of inflation, which stood at 3.1% in September. In addition, the one-year pay freeze for public sector workers has been lifted.
Chancellor Rishi Sunak said that the Autumn Budget will deliver a “stronger economy for the British people”.
The taper rate in Universal Credit will reduce from 63% to 55%. As a result, Universal Credit claimants will be able to keep an additional 8p for every £1 of net income they earn.
There will be a 50% cut in domestic Air Passenger Duty. This applies to all flights between airports in England, Scotland, Wales and Northern Ireland, excluding private jets.
Beer and cider drinkers
Drinks will be taxed in proportion to their alcohol content, which will benefit low-strength drinks of below 3.5%. Duty rates on draught beer and cider will be cut by 5%, taking 3p off a pint.
Duel duty was frozen one again, for the 12th year on the spin. It is frozen at 57.95 pence per litre.
The chancellor has announced a reduction in the tax surcharge levied on banks from April 2023. Currently, banks pay an extra 8% on top of the current 19% corporate tax rate. As a result, banks have a total corporation tax rate of 27%.
However, Sunak previously announced that the UK’s corporation tax rate will rise from 19% to 25% from 2023. If the bank surcharge tax was left unchanged, banks would have a total corporation tax rate of 33%.
This would potentially damage the competitiveness of the UK as a destination for banks and financial services, at a time when the City of London is already under pressure from Amsterdam, Paris and Frankfurt.
Therefore, the surcharge is being reduced from 8% to 3%. As a result, banks will pay a total corporation tax rate of 28% from 2023. While this will undoubtably be welcomed by banks, it should be kept in perspective. Despite the cut in the surcharge, banks will still be paying a 3% higher rate than any other industry. Meanwhile, the total corporation tax rate paid will increase by 1%.
It was confirmed that the annual ISA allowance will remain at £20,000 in the next tax year, April 2022. The Junior ISA and child trust fund allowances will also stick at their current levels of £9,000.
Low earners saving into a pension
The government has moved to fix a pension anomaly that negatively impacts low earners. It is introducing a 20% top-up for low earners in ‘Net Pay’ pension schemes from April 2024.
This corrects a longstanding inequity between those on low incomes in ‘relief at source’ pensions, who receive tax relief on pension contributions and those in ‘net pay’ pension schemes, who do not.
The government estimates that 1.2 million low earners will benefit from slightly higher pension contributions as a result – an average of £53 a year.
Becky O’Conner, head of pensions and savings at interactive investor, said: “The type of pension scheme someone is in is not generally something within an individual’s control, so lower-paid workers in this type of scheme are missing out through no fault of their own.
This correction has been on the cards for some time – the anomaly has persisted for many years. However, the 20% top-up will be introduced from April 2024. There is no suggestion it will be backdated for those who have missed out in previous years.”
It was announced that inflation (the Consumer Prices Index, CPI) will average 4% next year. CPI inflation stood at 3.1% in September.
A couple of months ago, the Bank of England forecast that inflation will hit 4% by the end of the year. Given that 4% has been predicted as an average inflation rate for 2022, the cost of living will peak higher than that figure.
Rising inflation is a blow for savers, including those with cash ISAs. While cash is less risky than the stock market, it would be a mistake to think that it is ‘risk-free’ due to the effects of inflation. When savings accounts pay below the rate of inflation, cash is eroded in real terms.
UK economic growth in 2022
The UK economy is roaring back to life, but looking further ahead to next year, growth forecasts have been downgraded.
First, the good news. The Office for Budget Responsibility (OBR) upgraded its growth forecast for the UK economy this year. It expects growth of 6.5%, up from its 4% forecast at March’s Budget.
While a notable increase, this is below what some economists had been expecting. Earlier this month, the International Monetary Fund (IMF) forecast growth of 6.8%. The Bank of England has predicted growth of 7.3%.
For 2022, UK economic growth has been downgraded. The OBR has forecast growth of 6%. In March’s Budget, it had predicted 7.3%.
The 2023 and 2024, growth forecasts are 2.1% and 1.3%. The respective forecasts in March were 1.7% and 1.6%.
A new rate of air passenger duty will be introduced for long-haul flights. The rates will be £13 (for 0-2,000 miles); £87 (2,000-5,500); and £91 (for 5,500 miles plus) respectively for economy passengers.
As alcohol will be taxed in a progressive manner, higher-strength products will incur proportionately more duty.
Rumours that proved to just be rumours
There were rumours ahead of the Budget that there would be changes to the earnings threshold for student loan repayments. However, no such announcement was made.
Higher-earning pension savers
Ahead of the Autumn Budget, as was the case prior to the last few Budgets, there were concerns that changes to pension tax breaks and allowances, or more specifically a cut to higher-rate pension tax relief, was on the government’s radar to help balance the books, given that the cost of pension tax relief is around £40 billion a year. Once again, this did not play out. Although, it remains low-hanging fruit for the government to pick in future.
Capital gains tax
There was also speculation that the chancellor would increase capital gains tax (CGT). This, however, also did not play out.
CGT is charged on profits from the sale of assets including shares, funds, second homes or buy-to-let properties, business premises, paintings and antiques worth over £6,000, with the rate dependent on the individual’s income and the type of asset sold.
Lower-rate taxpayers pay 10% tax on capital gains, and higher and additional rate taxpayers pay 20%. The only exception is people selling second properties, including buy-to-let investments. Capital gains on these investments are taxed at 18% for basic-rate taxpayers, or 28% for higher and additional rate taxpayers.
However, every year you can take advantage of your CGT allowance. In 2021-22, you can make gains of £12,300 before you start paying CGT.
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