Chancellor Jeremy Hunt rose to deliver his first full Budget (but the government’s third fiscal statement in as many months) on 17 November 2022, against a gloomy backdrop of rising inflation and economic recession.
He set out his three core priorities as stability, growth and public services, and is aiming for a balanced path to support the economy through the recession and return to growth, partly through tax rises (starting in 2023) and partly through public spending restraint (mostly after the next election).
As previously announced, the large increase in Corporation Tax is now proceeding as originally planned. Most of the other tax increases are due to freezing tax allowances for longer (fiscal drag), though Hunt has also increased energy windfall taxes, and reduced the threshold for the 45% additional rate of income tax. Despite growth being one of his core priorities, there was little to support and encourage business investment, apart from the £1m limit for the Annual Investment Allowance becoming permanent.
Much of the increase in the government’s deficits in the latest forecasts by the Office for Budget Responsibility is due to increases to servicing the national debt (which has increased a lot over the last few years) as interest rates increase, and of course the war in Ukraine is having an impact. But the Institute for Fiscal Studies also attributes part of our economic problems to ‘a series of economic own goals’ by a series of governments, leading to a long-term failure to grow the economy (the own goals including reducing investment spending, cutting spending on vocational and further education, and Brexit – the OBR has previously estimated the negative impact of Brexit on long run GDP as 4%). The IFS also noted that the tax increases seem to mainly be easy ones with little coherence – but Hunt has been in post only a few weeks, so maybe his next Budget will feel more like a proper plan.
As usual, as well as changes announced yesterday, our summary includes measures previously announced, but only coming into effect from April 2023 or later. These include:
Personal and Employment Taxes
- Income Tax – basic rate of income tax remains at 20% indefinitely
- Income Tax – the personal allowance and basic rate band for Income Tax were already frozen until 2025/26, but are now frozen until 2027/28.
- Income Tax – the 45% additional rate of income tax is retained and the point at which it starts is lowered from £150,000 to £125,140 from 6 April 2023
- Taxes on dividends – remain at current rates (so retain the increase by 1.25% from April 2022) and the Dividend Allowance falls (from £2,000 to £1,000 from April 2023 and to £500 from April 2024)
- National Insurance Contributions – extra temporary increase of 1.25% reversed (and the newish Health and Social Care Levy which was to follow on cancelled)
- National Insurance Contributions – thresholds frozen from April 2023 until April 2028
Business Tax
- Corporation Tax (currently 19%) – as announced in March 2021 this will increase to 25% from April 2023 for companies with profits over £250,000
- Capital allowances – £1 million annual investment allowance becomes permanent (but no extension of super-deductions, which therefore will end 31 March 2023)
- Research and Development – the Research and Development Expenditure Credit (RDEC) rate increases from 13% to 20%, but for small and medium-sized enterprises (SME), the SME scheme additional deduction decreases from 130% to 86% and the SME credit rate will decrease from 14.5% to 10% – changes apply to expenditure on or after 1 April 2023
Capital Taxes
- Capital Gains Tax annual exempt amount will be reduced from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024
- Inheritance Tax nil-rate band frozen at £325,000 for a further two years until April 2028;
- Stamp Duty Land Tax (SDLT) changes made earlier this year by the mini-budget remain, but only until 31 March 2025
Other measures:
- Vehicle Excise Duty – from April 2025 electric cars, vans and motorcycles will begin to pay in the same way as petrol and diesel vehicles
- Energy Profits Levy increased and extended
- Cost of living payments – further payments in 2023/24
- Increases in the National Living Wage and the National Minimum Wage rates
▶ Download our Statement Summary (PDF 371Kb)
If you have any questions regarding the information covered in this summary, or would like advice on a particular area, please get in touch with either your usual contact or any of the UNW Tax partners. Contact details can be found on the final page of this summary PDF.