Autumn Statement 2022 - Predictions

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With the autumn statement now fairly imminent we have set out below some further thoughts and predictions.

When Jeremy Hunt delivered his first speech as Chancellor of the Exchequer to the House of Commons he was just three days into his new role.

However he was already making it clear that the government would be making “decisions of eye-watering difficulty…to ensure there is trust and confidence in our national finances”.

It is therefore not surprising that there has been much speculation surrounding the Autumn Statement on 17th November and what measures will, in the words of the Chancellor, result in everyone paying “a bit more tax”.

Below are a few predictions and our opinion of exactly how likely they are to transpire.

Extend freeze of Income Tax thresholds

It is estimated that the previously announced ‘freeze’ of income tax thresholds to 2026 will raise c£30bn and if The Chancellor extends the freeze until 2028 this figure would increase by approximately £5bn.

Our prediction: The extension of the freeze is considered to be quite likely.  While it might not make headlines for the taxpayer, with many campaigning for increased wages in light of inflation, the impact may be more than first thought.

Dividend rates and tax-free allowance

Just last month The Institute for Public Policy Research published a paper which estimated that increasing the dividend tax rates to bring them into line with income tax, could raise £6bn.

It has also been reported that The Chancellor is considering halving or even scrapping the current tax-free dividend allowance of £2,000, which could raise another £1bn.

Our prediction: While we don’t think it is likely that dividend tax rates will be increased in line with income tax, a percentage increase might be more likely to be on the cards.  Any change to the allowance or the tax free amount would impact shareholders and owner managers without having a direct impact on the majority of the population.  

Inheritance tax nil rate band

A freeze in the inheritance tax nil rate band of £325k was announced in the 2021 Spring Budget and was estimated to raise £1bn over the period to 2026.

Extending this freeze for another two years could generate additional revenues of £500m.

Our prediction: Extending the freeze on the inheritance tax band would be a simple method for the government to raise additional revenues without impacting the majority of the population at a time when the cost of living crisis is high on the agenda. 

Capital gains tax

There has been speculation of a number of changes to the capital gains tax regime including an increase in the capital gains tax rates (currently ranging from 10% to 28%), a decrease in the annual exemption (£12,300) or a change to Business Asset Disposal Relief e.g. a reduction in the lifetime allowance or an increase in the applicable rate (currently 10% on the first £1m of lifetime gains). 

Our prediction: While it is estimated that an increase of capital gains tax rates to income tax levels would raise an additional £16bn for the Treasury, given the current economic climate we don’t think that this is likely.  Any increase in the current rates would potentially work against the growth agenda and would therefore be a big risk for the Government to take. 

However, perhaps reductions in the reliefs and allowances are more likely to be given the go ahead on Thursday.  A move which again wouldn’t directly impact the general UK population. 

Perhaps any changes to the capital gains tax regime will be announced but not effective immediately, thus encouraging an immediate flurry of activity in the transactions world and accelerating tax receipts.

Windfall tax

It was announced in May 2022, under Boris Johnsons’ government, that there would be a 25% “windfall tax” on the profits of oil and gas companies until December 2025, which was estimated to raise £5bn.

It is widely expected that the Autumn Statement will see an increase in the windfall tax to 30% alongside both an extension to the applicable time period to 2028 and increasing the scope of the tax to include excess profits made by electricity generators.

It is estimated that this combination of reforms to the windfall tax could raise an estimated £40bn for the government over five years.

Our prediction: At a time when households are struggling with energy costs, while reading of energy company’s doubling profits, the extension of the windfall tax appears to be a smart move for the government, both in terms of raising revenue and gaining support from the general public.  However, perhaps it is more likely that the increased rate will fall short of the predicted 30%.

Capital investment

Following a number of policy changes and ‘U turns’, the rate of corporation tax will increase by 6% to 25% from 1 April 2023 for many businesses.

It has therefore been speculated that to enable the government to deliver on its promise of future business investment, the Autumn Statement might bring about some improvements to capital allowances for those investing in qualifying capital expenditure.

Our prediction: Given that it was announced in September's ‘Mini-Budget’ that Annual Investment Allowance, which was due to reduce to £200k from April 2023 would remain permanently at £1m, coupled with the expectation that this allowance would cover the investment expenditure of the majority of the UK's businesses, perhaps it is unlikely that any further improvements to the capital allowances regime will be announced so soon.

Bank surcharge

Another impact of the rise in the Corporation Tax rate to 25% was the previous announcement that bank surcharge (which banks pay on their profits) would decrease from 8% to 3%.

However, it has been suggested that in light of the current economic climate and the increase in interest rates, that The Chancellor may scrap the planned decrease.

Our prediction: While such an announcement might be welcomed by the general taxpayer, given the focus on the UK remaining competitive in the finance industry it is perhaps more likely that the surcharge will be feature in the Statement and that the reduction will go ahead as previously legislated for.

Investment zones

As announced in September under Liz Truss’ government new ‘Investment Zones’ are to be established to encourage investment in specific areas of the UK.  The aim of the zones were to drive fast levels of growth by reducing taxes and removing some of the frustrations of planning frameworks. 

Our prediction: We understand that The Chancellor has called for this proposal to be reviewed prior to the Autumn Statement on Thursday.  While it is difficult to predict what changes will be made, or indeed if the incentive will be scrapped altogether, we would certainly expect that, at a minimum, restrictive ‘caps’ will be introduced, without which the Treasury has estimated that the zones could cost up to £12bn in lost tax revenues.

Non-domiciled taxpayers

The tax landscape for non-UK domiciled taxpayers has long been an area where a review has been expected.

Our prediction: Given the political sensitivity of the issue we would expect that any announcement in the Autumn Budget on non-domiciled individuals would be limited to beginning a consultation process.