Three big Autumn Budget 2022 themes: recession, tax and school funding
A country in turmoil, plans for economic growth, tax increases and dedicated funding for schools and the NHS were all points discussed during the 2022 Autumn Budget.
In the face of unprecedented global headwinds, our new Chancellor, Jeremy Hunt, took to the stage to deliver his first Budget announcement, opening with: “Today, we deliver a plan to tackle the cost of living crisis and rebuild our economy. Our priorities are stability, growth and public service.”
It is official: we are in a recession
Following expert predictions that the economy will shrink by 1.4% next year, the Chancellor acknowledged the UK is in a recession, saying things will get worse before they improve.
The war in Ukraine, soaring energy prices and increased food costs were all cited as global factors leading to this recession.
Ominously, analysts have claimed that the UK is less equipped to deal with this kind of shock due to a period of under-investment, which left us less efficient and less resilient.
So, what plans does the Chancellor have to turn this situation around?
Millions to pay more tax
As noted by Ione Wells, Political Correspondent for the BBC, it seems the Chancellor was avoiding the phrasing, tax rise; but within today’s statement, that is exactly what’s happening.
Here are a few of the tax ‘changes’ announced:
Top rate income tax
Firstly, the threshold for when the highest earners start paying the top rate of tax is dropping from £150,000 to £125,140.
Also announced was that National Insurance, Income Tax, Personal Allowance, Inheritance Tax and higher rate thresholds are to be frozen until 2028.
The threshold freeze means that tax bands will stay the same, even as people’s pay goes up; the portion of earnings that we pay as tax will increase, and more people will move into higher tax brackets.
To create a fairer tax system, from April 2025, electric vehicles will no longer be exempt from Vehicle Excise Duty.
Windfall tax has seen a major increase; oil and gas companies’ taxes on UK operations will increase by 10%, taking the rate from 65% to 75%.
The increase will last until March 2028.
Additionally, a 40% tax on profits of older renewable and nuclear electricity generation was also announced.
The Chancellor confirmed that from April 2023, the National Living Wage (NLW) will increase for over-23s, from £9.50 an hour to £10.42.
For full-time workers on NLW, the change represents an annual pay rise worth over £1,600.
While announced during the Budget, it's worth noting that NLW sees an increase every April, and the announcement today was simply made to allow firms to prepare.
Pensions to rise
In line with inflation, Hunt confirms that state pensions will rise in line with September’s inflation rate of 10.1%.
The state pension rise follows the Government’s triple lock plan based on a manifesto pledge to match state pensions to the highest of either the previous September inflation figures, the average wage or 2.5%.
School budget increase
“A message for heads, teachers and classroom assistants: thank you for your hard work,” said the Chancellor.
While the UK has risen nine places in the global league table for maths and reading in the past seven years, during the announcement, Hunt questioned whether every UK student leaves the education system with the skills they get in other countries.
To support schools, help leaders and ensure standards continue to rise, the Government will invest an extra £2.2 billion.
Hunt stated, “we are going to do more than protect the school budget – we will increase it.”
However, Sam Freedman, a former Government adviser, commented: “Until we know what’s happening with energy prices, inflation and pay next year – we can’t be clear exactly how generous this is.”
What’s next for the UK?
The current Government seem confident in its Budget, announcing that you can't borrow your way to growth.
However, their opposition does not share the same sentiment, with the Shadow Chancellor, Rachel Reeves, addressing the commons with: “Here we are at the end of 2022, three Prime Ministers, four Chancellors and four Budgets later. And where do we find ourselves? In a worse place than we started the year."
To see the entire list of changes, including NHS funding and adjustments to council tax, see the full statement here.
Unlock your Power
Ultimately, time will tell whether today’s Budget will be the silver bullet to the recession.
While times remain uncertain, one thing you can rely on is IRIS’ commitment to supporting UK businesses during these challenging times.
Our new Unlock your Power initiative focuses on how software can protect businesses, accountants and schools from inefficiencies, rising costs and economic crisis – learn more here.