Interactive Investor

Autumn Statement 2022: who are the real winners and losers?

17th November 2022 14:58

Alice Guy from interactive investor

The Autumn Statement will hit taxpayers in the pocket as they pay for ballooning government debt. We look at the biggest winners and losers.

As Jeremy Hunt rose to his feet this morning a feeling of gloom swept the nation. The self-professed Scrooge announced a series of eye-popping tax rises that will see most of us paying more to the taxman over the next few years.

The chancellor also announced that government departments will be asked to rein in spending, although education and the NHS will receive more funding.

Here we examine the biggest winners and losers from the autumn statement.  

Winners

Pensioners

One of the few winners from the Autumn Statement are those on the state pension. Ending weeks of speculation, Jeremy Hunt today confirmed he will reinstate the triple lock in April 2023, meaning that the state pension will rise to £10,600 in line with inflation of 10.1%. This will give pensioners an extra £963 per year and will largely protect them from inflationary rises in the cost of living.

However, the Treasury will still need to find a way to reduce the escalating state pension bill. Buried in the detailed Autumn Statement report are hints that those approaching retirement may see the state pension age increase faster. The report comments that, “there is currently a review of the state pension age being carried out which is considering whether the existing timetable remains appropriate.”

Poorer households

Along with pensioners, poorer households receiving universal credit or child tax credit will see their benefits uprated by inflation, protecting them from rising costs.

It’s a recognition of the fact that the cost-of-living crisis doesn’t affect everyone equally and poorer families spend a bigger proportion of their income on essentials. It’s the cost of those essentials that is rising the fastest.

Households

Hunt also confirmed that the energy support package will be extended beyond April, with a new energy cap of £3,000, a £500 rise on the current price cap. The chancellor had previously announced that the current energy package would end in April, and it wasn’t known what was planned to replace it.

The extended cap means homeowners will be protected from the worst of energy price rises with a large potential cost to the Treasury. The price cap is based on an average household and some larger households will end up paying more.

There will be additional support for poorer households, with those on means tested benefits getting an extra £900 cost of living payments and pensioners and those on benefits receiving £300 and £150 respectively.

Without the energy price guarantee, some experts were predicting that energy bills for an average household could have risen as high as £5,000.

The energy support package not only helps households, but also reduces headline inflation. Victoria Scholar, head of investment, interactive investor explains that: “without the Energy Price Guarantee, electricity, gas, and other fuel prices would have risen by nearly 75% between September and October instead of 25%, which would have taken CPI inflation to approximately 13.8%.”

The wider economy

If the chancellor succeeds in reducing government debt and controlling inflation, then the wider economy will be the winner.

The chaos of the last few months is a reminder that government policy can influence the wider economy, especially if the market loses confidence in the treasury.

Hunt’s Scrooge-like policies are in stark contrast to the give-aways of the mini-budget just a couple of months ago. It’s a sign that the government are serious in trying to control government debt.

The Autumn Statement report comments on government debt, saying “if debt interest spending were a government department, its departmental budget would be second only to the Department for Health and Social Care…. this year the government is expected to spend more than 11% of its revenue on debt interest, the highest level since the 1960s.”

The markets have not reacted significantly to the Autumn Statement as most of the announcements were in line with expectations.

Losers

Taxpayers

The Treasury plans to freeze tax thresholds until 2028, meaning that more and more people will be dragged into paying tax at a higher rate as their wages rise with inflation. This policy is known as fiscal drag, which means that people will have a much higher tax bill over time. Included in the fiscal drag net are income tax, national insurance, inheritance tax and the pension lifetime allowance, as well as many other taxes.

The income tax personal allowance will be frozen at £12,570 until 2028 and the higher rate tax threshold will stay at £50,271, so higher rate taxpayers will see more of their income being taxed at 40%.

The pension annual and lifetime allowances and ISA allowances will also be frozen until at least 2028, limiting the amount you can invest in these tax efficient wrappers.

High earners

Hunt is also targeting high earners with more tax, announcing that the threshold for the additional rate income tax of 45% is being reduced from £150,000 to £125,000. This policy will pull an additional 250,000 people into the highest tax band, costing them an extra £580 per year.

This tax hike is an addition to the existing hidden threshold for people earning £100,000. The rules mean higher earners see their personal allowance reduced and tapered away once they earn over the threshold.

Buy-to-let landlords and those with assets

In a controversial move, Hunt also announced that the capital gains tax threshold is being slashed from £12,300 to £6,000 and then to just £3,000 by April 2024.

These changes will hit buy-to-let landlords and people selling other assets. The current rules mean you can make a gain (selling prices minus buying price) of up to £12,300 each year before capital gains tax is due.

Investors with capital gains over these thresholds will pay 20%, or 10% if this amount is within the basic income tax band.

Investors

Investors will also be paying more tax next year as the dividend tax threshold is reduced from £2,000 to £1,000 next spring and then £500 from April 2024. Tax on dividend income is charged at 8.75% for basic rate payers, 33.75% for higher rate payers and 39.35% for additional rate payers.

Private investors face bigger tax bills if they do not take action before the new tax year.

Sam Benstead from interactive investor commented that, “For most people, using both ISAs and SIPPS is prudent. ISAs can be accessed at any time and are great for financing big-ticket expenses in life, such as school fees or a wedding, or for clearing a mortgage.

Energy companies

The chancellor also announced plans to raise the additional levy on energy companies to 35% and extend it for two years. The plans were largely expected but the rise was slightly higher than many predicted.

Victoria Scholar at interactive investor said: "the biggest market reaction has been seen among the electricity generators like SSE (LSE:SSE), Drax Group (LSE:DRX), Centrica (LSE:CNA), and National Grid (LSE:NG.) which have seen a highly volatile trading session around today’s Autumn Statement. Stocks in this sector initially moved sharply lower after the chancellor extended the windfall level to energy generators, imposing a 45% levy, ahead of analysts’ forecasts for 40%.

"However, these companies swiftly reversed losses to trade multiple percent higher after Hunt announced plans to extend the Energy Price Guarantee for another year until at least 2024. Centrica is the top performing stock on the FTSE 100 today, up by more than 4%."

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