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The new UK Chancellor of the Exchequer Jeremy Hunt unveiled his annual fiscal statement on 17 November. There were few immediate surprises since the details had been widely trailed in advance; but the scale of the changes represents a huge U-turn following the change of the government’s political leadership.

Under the short-lived administration headed by Prime Minister Liz Truss, her Chancellor Kwasi Kwarteng produced a mini-budget in September including a number of significant tax cuts, without the usual accompanying report on the fiscal and economic implications from the independent Office of Budget Responsibility (OBR). This led to a crisis of confidence in financial markets, with sharp and disruptive falls in prices of UK government bonds, closely followed by the removal of Kwarteng and the resignation of Truss; and a new leadership with Hunt as Chancellor and another former Chancellor Rishi Sunak as PM.

Two of the three major tax concessions announced by Kwarteng in September are now scrapped. These were a proposed reversal of the increase in the main corporation tax rate from 19 to 25 per cent with effect from April next year, which will now go ahead; and a plan to cut the basic rate of income tax from 20 to 19 per cent at the same time.

However, a third change announced in September has already taken effect and will not now be reversed. This was the ending from 1 November of the 1.25 per cent increase in all National Insurance contributions (NICs), imposed a year ago from 1 April this year by Chancellor Sunak in his autumn statement last year.

Economic background

The two global factors which have hit most countries – the disruption caused by the Covid epidemic over the past two years, and the huge hike in energy prices resulting from Russia’s invasion of the Ukraine – have of course taken their toll on the UK economy and its public finances. The ending of the UK’s friction-free trade with the EU as a result of Brexit, taking effect in 2020, appears to have done further damage to the UK’s overall economic performance.

Like many other countries, the UK seems now to have has now gone into recession. Though the OBR forecasts a 4.2 per cent upturn in real gross domestic product (GDP) for the current calendar year, compared with last year’s level still hit by Covid restrictions, the current level of GDP remains below the pre-Covid level of 4th quarter 2019. It is forecast to remain so up till the end of 2024.

The OBR now expects a 1.4 per cent GDP fall next year, followed by a recovery of only 1.3 per cent in 2024; and (for what medium term forecasts are worth at this stage) a return to 2.6 – 2.7 per cent annual growth in the two following years. The registered unemployment rate, currently at a relatively low level of 3.6 per cent, is expected to rise to 4.9 per cent in in 2024, then falling back to 4.1 per cent.

In common with some other countries, and reflecting the fiscal and monetary easing of the Covid lockdown period as well as the global hikes in energy and food prices, the UK has been experiencing very high rates of inflation. The annual increase in retail prices has now hit 11 per cent. The OBR forecasts inflation of 9 per cent for this calendar year as a whole, falling to 7.4 per cent next year.

Real interest rates, after allowing for inflation, are still very much in negative territory. The Bank of England has been tightening its monetary policy, and this process may have further to go. The policy remains subject to a long term target of 2.5 per cent annual inflation, which was broadly achieved over nearly three decades up to 2020.

The outlook for business sector investment has worsened considerably since the last OBR forecast in March this year. Its volume is now expected to have remained flat in 2022, and to fall substantially next year. The OBR projects a sustained recovery after that, but with business investment not exceeding the 2019 level until 2025.

In the consumer sector, real personal disposable income is expected to have shown an annual drop of a record 4.1 per cent in the 2022/23 financial year, followed by a further drop of 2.8 per cent in the next year.

Public sector borrowing is forecast at 7.1 per cent in the current fiscal year, falling to 5.5 per cent next year and to 2.4 per cent by 2027/28. The “underlying” measure of national debt is now forecast to peak at 97.6 per cent of GDP in 2025/26, falling slowly thereafter. The current upward trend of interest rates is expected to boost the cost of annual public borrowing by as much as 2 per cent of GDP between this financial year and the next.

In these conditions, the Chancellor has somewhat relaxed the fiscal ground rules compared with previous years’ plans. He now aims to start reducing the national debt by the final year of the rolling five-year forward plan, rather than the third year as in recent plans; and to keep current public borrowing to an average of 3 per cent of GDP over this five-year forward period. It is possible that the high level of current inflation could have the effect of easing the ratio of accumulated national debt to GDP, to the extent that it may not be fully counteracted by the effect of higher borrowing cost

The Chancellor plans fiscal tightening of £55bn per year, valued at present prices, by 2027/28. Just over half of this is expected to come from public expenditure cuts rather than tax rises; but the spending cuts will begin to take effect later than the tax increases. The overall tax burden will rise to 37.5 per cent of GDP in the 2025/26 financial year, the highest level since the 1940s.

Business and car tax changes

On corporation tax, for asset finance players in the banking sector one redeeming feature is the Chancellor’s confirmation of earlier plans to cut the additional corporate tax rate for banks (first imposed after the 2008 financial crisis) from 8 to 3 per cent when the main rate

goes up next April (see above). The effective tax rate for banks will therefore rise only from 27 to 28 per cent. Competition between finance companies inside and outside the banking sector will then be on a more level playing field.

The Chancellor announced further extensions of the “windfall tax” on UK energy production. From the start of 2023, the levy on oil and gas profits will rise from the current level of 25 per cent, effective from its introduction in May this year, to 35 per cent from the beginning of 2023. That levy will be extended from its original 2025 end date to 2028.

Also, from January there will now be a new temporary levy on electricity generation from non-gas sources, at the rate of 45 per cent on revenues earned when average selling prices are above £75 per kilowatt hour. The exemption for gas-fired generation is because current high selling prices for electricity across Europe are driven by high natural gas prices, this fuel having become so dominant as a power source across the continent. Hence there is no windfall profit for gas-fired electrical power.

The new levy on non-carbon power sources may prove unhelpful for the transition to clean energy. One major UK energy supplier SSE has warned that it may have to abandon some planned new investments in environmentally sustainable power sources.

The freeze on the annual earnings threshold of £9,100 for employers’ National Insurance contributions will be extended until April 2028. On business rates, the Chancellor announced that the property revaluation in England from April 2023 will proceed as planned, but that there will be some transitional relief for those properties adversely affected over the subsequent five years.

The VAT registration turnover threshold at £85,000 per year will be kept frozen for a further two years beyond previous announcements, to March 2026. Many more micro-businesses, possibly including cab drivers, will be brought into registration as a result.

Electric vehicles will be made subject to vehicle excise duty from April 2025. Company car tax rates under income tax will nevertheless remain relatively lower for EVs. The current 100 per cent first year allowance (FYA) for capital expenditure incurred by businesses installing EV charging extensions will be continued until March 2025.

Kwarteng’s proposal for various business tax concessions in designated regional “investment zones” is to be scaled back in scope, “to catalyse a limited number of high potential clusters”. Details will emerge later.

Personal taxation changes

On personal taxation, the Chancellor has chosen to avoid increases in headline rates of tax but to raise effective tax rates mainly by freezing annual thresholds and allowances in a period of continuing inflation. Thresholds for both the basic and 40 per cent rates of tax will be kept frozen for a further two years beyond previous plans, until March 2028.

However, there is to be a significant cut in the starting point for the 45 per cent top tax rate (which Kwarteng had briefly proposed to abolish). From next April, for taxpayers resident in England, Wales or Northern Ireland this will come down from £150,000 a year to £125,140 –

a level chosen to match the top of the 60 per cent marginal rate band where the benefit of personal allowances is clawed back on incomes above £100,000. In Scotland both the top rate and its starting point are devolved matters; but it is perhaps likely that the Scottish government will keep its current 46 per cent top rate while matching the cut in the starting point elsewhere in the UK.

As well as the sliding scale for clawing back personal allowances over the range from £100,000 - 125,140, some other tax allowances are removed on a “cliff edge” basis as soon as income exceeds £100,000. These features will continue when the 45 per cent rate comes down to the top of the personal allowances clawback band

Other tax changes targeted at those with high incomes include the scrapping of Kwarteng’s proposal to end from next April the special extra dividend tax of 1.25 per cent – originally imposed a year ago to match the now abandoned NIC increase. In addition, the annual tax-free allowance on otherwise taxable dividends will be reduced from the current £2,000 level to £1,000 in 2023/24 and then to £500 in 2024/25.

When allowance is made for the impact of NICs, and dividend taxes for those self-employed workers who trade through their own companies, no taxpayer earning above £100,000 a year will face an effective marginal tax rate of very much less than 50 per cent on UK earnings in the coming years. Such a rate is certainly high by global standards, if not west European ones.

In capital gains tax, the annual exemption limit will be slashed from the current level of £12,300 to £6,000 in the next tax year and to £3,000 from April 2024.

Sales taxes

Following an earlier public consultation the Chancellor has decided not to adopt the idea of a general online sales tax, which had been pressed by some “bricks and mortar” retailers faced with pressures from costs such as business rates.

Capital allowances

The Chancellor has confirmed that the annual investment allowance (AIA), a 100 per cent FYA for each individual business that largely benefits SMEs, will be at a permanent annual level of £1million on plant and machinery expenditure from next April.

However, more importantly for larger companies the temporary “super-deduction” in the form of a 130 per cent FYA for plant and machinery expenditure will lapse after next March. The idea of alternative enhancements of capital allowances (CAs) to replace it, launched in a public consultation last March by Sunak as Chancellor, has been abandoned.

This means that CAs for most types of plant (and vehicles) will revert to 18 per cent per year on the “reducing balance” basis. This is very inadequate compared with the obsolescence rates for many asset types subject to it, and their typical depreciation charges adopted for accounting purposes (which do not affect tax).

Nevertheless this has mixed implications for asset finance. For on typical equipment lease contracts, where it is the lessor who claims CAs, leased assets are excluded from all FYAs - except for the AIA, which is relatively insignificant given the scale of typical leasing business. Consequently, the ending of the super-deduction will remove one current area of tax discrimination against the use of asset finance.


In contrast with the Kwarteng’s September mini-budget, Hunt’s autumn statement has been generally well received on the financial markets. There has nevertheless been strong criticism from many UK business representatives.

National chair of the Federation of Small Businesses (FSB), Martin McTague, said: “Today’s [announcements are] high on stealth-creation and low on wealth-creation, piling more pressure on the UK’s 5.5 million small businesses, their employees and customers. … The slashing of dividend taxation allowances will be a bitter blow to hard-working owners of small limited companies trying to pay the bills, earn a living and grow their business.”

The Confederation of British Industry was less sharply critical. Its chief economist Rain Newton-Smith said: “The Chancellor deserves credit for delivering stability, as well as protecting the most vulnerable, but businesses will think there is more to be done on growth ….Stabilising public finances inevitably means difficult decisions have to be taken. Businesses will view a freeze in NICs thresholds and further windfall taxes as the sharpest stings in the tail.”

Image: UK Parliament