Jeremy Hunt had an odd challenge with the Autumn statement. He needed to demonstrate to the markets that he was serious, by meting out hefty blows on all sides, delivering all the festive joy and financial pain of Hans Gruber without the memorable one-liners. Meanwhile, in order not to upset the political applecart, he had to balance this with enough good news to keep voters happy. As a result, we have stealth taxes galore, targeted blows for those with more cash, and some better news on pensions, benefits, and energy bills.
The bad news
The stealth taxes came thick and fast. Income tax bands, National Insurance, and inheritance tax allowances were already frozen to 2026, but they’ll now be held at the same level until 2028. The government favours stealth taxes like this, because not only can they avoid announcing a rise, but they tend to affect money we haven’t yet earned, so we’re less likely to notice the change. Unfortunately, over time, inflation will mean the government takes a larger and larger share of our cash, and the sheer length of these freezes means six years after the fuss of the Autumn statement dies down, the taxman will be quietly picking your pocket.
Another subtle move was to talk about ‘more flexibility’ on council tax in order to support care, which basically translates into a council tax hike of close to 5% next year. The government has changed the rules to allow this increase without having to hold a local referendum, and huge numbers of councils are facing such huge shortfalls that they’re likely to fill their boots. It means the average band D council tax rate is likely to rise from an average of £1,966 to as much as £2,064.
Otherwise, the government was keen to show that those with more money would face the biggest burden, so it made a number of announcements, including a cut in the additional rate tax threshold from £150,000 to £125,140, which means more than 200,000 more people will be dragged into the 45% bracket, and additional rate taxpayers will pay an average of £1,200 more.
There was also bad news for investors and anyone who works for themselves and pays themselves in dividends, because the dividend tax allowance and capital gains tax allowance (paid on profits when you sell investments) have both been cut. Right now, you can receive dividends of £2,000 without paying tax. This will fall to £1,000 next April and £500 the year after. Meanwhile today’s capital gains tax allowance will drop from £12,300 to £6,000 next April and £3,000 a year later.
Anyone who runs their own business and pays themselves in dividends will end up paying more tax. This is particularly hard to take at a time when they are under increasing pressure from rising prices and over-stretched customers. Meanwhile, investors who hold money in funds or shares outside a pension or an ISA will face a greater tax burden, which is a reminder of the value of ISAs in protecting investors from having to consider either of these taxes.
There’s also looming misery for house buyers further down the line, with the announcement that the stamp duty cut will be reversed in 2025. This could be a useful short-term boost to the market, forcing people to buy earlier than planned, and helping to keep the market ticking over until March 2025. However, this could be bad news for buyers. Right now, the market is sending out every possible signal that they might want to hang fire, because we could be reaching the peak, but the desire to save tax could force them to buy sooner than they otherwise would, and expose them to the risk of property price drops.
On the spending front there was little detail on the impact of cuts, but one thing we do know is that the social care cap will be delayed for another two years – to 2025. This news will be greeted with horror by the many people currently wrestling with the huge costs of paying for care.
The good news
There was better news for pensioners. After weeks of speculation about whether the triple lock would return, confirmation of a 10.1% increase next April will come as a huge relief. However, it’s also worth saying this change will only come into effect from April so there is a tough winter ahead.
There was also some good news on the energy bills front, especially for average earners, who were worried they might be left out in the cold. The new package, from April, will keep bills at £3,000 for average users – protecting them from a rise to as much as £3,700. This still leaves them with a horrible mountain to climb, and the fact that this comes on top of so many other price rises means life will be
The rise would be an impossible challenge for those on lower incomes, so the additional support payments from the government are absolutely vital. Those on means tested benefits (including pension credit) will receive £900, while all pensioners will receive £300, and people on disability benefits will get an extra £150.
The fact that benefits will rise with inflation in April will also come as a huge relief. Those on the lowest incomes still face a struggle to make it through the winter, but this at least gives them hope that things won’t always be so difficult. A lift in the minimum wage will be another small drop of comfort, but with inflation rising at the 41-year high of 11.1%, lower earners are still likely to face huge challenges to cover their rising costs.
As we go through the next few weeks and months, we can be sure there will be more worrying developments when it comes to the impact on spending cuts, but for now at least we can take some comfort in the fact that the government felt the need to balance some of its tax hikes with at least a little good news.
Watch: Autumn Budget: Jeremy Hunt announces UK now in recession