The autumn statement is a budget in all but name. It sets out the government’s proposed spending for the next year, as well as it’s anticipated revenues and how it will collect them.
In the autumn statement, published on Thursday 17 November,the Chancellor of the Exchequer, Jeremy Hunt, announced the government’s policyto freeze tax thresholds. This means all workers who earn more than the tax-free allowance of £12,750 per year will pay more tax.
The Chancellor of the Exchequer is the government’s chief financial minister. He’s responsible for setting the policies to raise revenue through taxation, as well as controlling public spending. The minister publishes and presents both the Budget and autumn statement.
“The chancellor, Jeremy Hunt, has pressed the button on a new wave of austerity in an autumn statement that will bring to an end eight years of improved living standards.” Jess Clark, The Guardian.
The chancellor announced that the government forecasts that Gross Domestic Product (’GDP’) will shrink by 1.4% in 2023. He also announced that they expect inflation to remain above 7%. The current rate of inflation is 11.1%.
The overall standard of living is expected to fall by 7% over the next two years.
What is GDP and how is it used?
Gross domestic product is the monetary value of all finished goods and services made within a country during a specific time period. It’s one of the markers used to assess how the economy will grow – or fall – and the rate which it will happen.
The government expects GDP to fall by 1.4% in 2023, then rise by 1.3% in 2024, 2.6% in 2025 and 2.7% in 2026.
What is inflation?
The inflation rate shows how much prices have risen in the previous 12 months, since the same day the previous year. The inflation rate, published each month, is at its highest rate for over 40 years.
What does the tax threshold freeze mean?
In the 2021 spring budget, Rishi Sunak – the then chancellor – announced a four-year freeze on tax thresholds. Tax thresholds are the level of income earned above which people or companies must pay tax, or must pay a higher rate of tax.
In the autumn statement, Jeremy Hunt announced that the freeze on tax thresholds will remain in place for an additional two years, which means there will be no change in thresholds until 2028.
By freezing the tax threshold, this will draw more lower-income households into paying basic rate tax. The basic rate tax of 20% is applicable on earnings over £12,750 a year.
With the three main tax rates unchanged, Jeremy Hunt made an abrupt reversal of the previous chancellor’s policy for earners in the higher rate bracket, by lowering the top rate of income tax from £150,000 per year to £125,140 a year. This means that an additional 250,000 Britons will pay more tax by adding them into the top rate of tax.
The main income tax rates and thresholds are:
- For the basic tax rate of 20%, the threshold is £12,750
- For the higher rate of tax of 40%, the threshold is £50,270
- For the additional rate of tax of 45%, the threshold is now £125,140
How were benefits impacted by the Autumn Statement?
Hunt announced inflation-level increases of 10.1% to working-age benefits and pensions. Pensions will rise in April 2023.
He also announced an increase in the national living wage for over-23’s.This will increase from the current rate of £9.50 per hour to £10.42 an hour.
What cost of living support is available?
In the autumn statement, the chancellor said that households will continue to be provided with support in 2023:
· He announced a new one-off payment of £900 to households on means-tested benefits; £300 to pensioner households, and £150 for individuals on disability benefit
· The energy price guarantee will be kept for a further 12 months. This is an average of £3,000 for a typical household, up from the current £2,500
· There will be an additional £1 billion in funding to enable further extension to household support fund
· Social housing rents will be capped at 7% next year, to avoid rent hikes of up to 11%
· The “national living wage” will rise by 9.7% next year
· Benefits will rise in line with September’s inflation rate, by 10.1%. This will cost the government an additional £11 billion
· The benefit cap will be increased with inflation next year
· The pensions triple lock will be kept
How will lower income households be affected?
For lower income households, the additional benefits will see an improvement to monthly finances. For a single parent who earns £11,000 per year - below the basic rate tax threshold of £12,750 - with two children, the changes brought by the autumn statement will mean that they will get £800 per month in Universal Credit. This is an increase from the current payment in 2022/23 tax year of £680.
Child benefit will also be increased from £144 to £160 per month. The household also claims means-tested benefits, so the parent will be eligible for the £900 cost of living payment. Overall, the household will be £1,882 better off.
In contrast, a single person who earns £38,000 per year will be worse off after the changes come into effect. They will pay tax of £5,084 and national insurance of £3,052.This employee won’t receive the energy bill subsidy in the 2023/24 tax year and faces higher bills because the government’s energy price cap will be £3,000 instead of the current cap of £2,500. Before taking household expenses and inflation into consideration, this person will be at least £200 worse off a year.
How does PayCaptain help?
As many households will feel their finances being squeezed, employees who are paid using the PayCaptain payroll solution can access tools and guidance to help improve their financial position.
PayCaptain has a money-planning tool where employees can create their own personal budget. They can also access helpful and confidential financial guidance whenever they need it through Money Helper, directly through the PayCaptain app. This will help them understand their income and spending, which is at the heart of financial wellness.
There is a Benefits Entitlement Checker, powered by Inbest to help employees find any benefits that they may be entitled to. The government estimates that £15 billion of benefits go unclaimed every year.
PayCaptain has developed an interactive in-app questionnaire to evaluate how employees feel about their finances. The tool generates a personalised Financial Well-being Score and recommends practical steps to help improve financial health.
The PayCaptain app incorporates guidance on a wide range of financial topics – all of which can be accessed directly inside the app.
PayCaptain has payment-splitting functionality so that employees can make payments direct from their net pay. Payments can be made to landlords, loans, credit cards, etc, which eliminates the risk of missing an important payment - something which increases the likelihood of financial difficulty.
On demand pay is available in the PayCaptain app at no cost to the employee. It gives employees the ability to access up to £200 of emergency cash in times of financial difficulty, as well as weekly advances against accrued pay. The option to access money in an emergency is a highly valued benefit and is quick and easy to obtain instantly via the app. Weekly funds can be helpful for employees to manage their budget and keep parts of their pay protected for bills and direct debits at the end ofthe month.
In summary, most households are going to feel even more of a pinch over the 2023/24 tax year, as the policies from the autumn statement are implemented. With inflation expected to reach 13% in the new year, before settling at a forecasted level of 7% through 2023, a period of austerity will be the new ‘norm’ until the government’s fiscal policies start to show some returns. Most households in the UK will pay more tax as a result of the policies.
