Chancellor Jeremy Hunt will unveil his long-awaited Autumn budget statement this Thursday, having warned in advance that “we will be asking everyone for sacrifices”.
Hunt is looking to fill the black hole of up to £60bn in public finances through a combination of tax rises and public-spending cuts.
Spending cuts across most if not all government departments are expected, although all eyes will be on whether health and defence spending are protected from the brunt of savings.
Any cuts could prove painful to already stretched public services and Hunt is likely to seek to claw back revenue through tax rises.
Stealth taxes could be a big theme of the autumn budget. These involve freezing the thresholds at which people start paying different rates of tax. Because of inflation and pay increases, this involves people paying more tax because more of their income is within a higher tax band.
Included in this fiscal drag net are income tax, national insurance, inheritance tax and the pension lifetime allowance, among other taxes. This would raise about £5bn a year by 2027-28.
When Rishi Sunak was chancellor, he introduced a four-year freeze on tax thresholds. Under the plan, the personal allowance – the level above which workers start paying income tax – was frozen at £12,570 from April 2022 until 2025-26.
The threshold for higher-rate income tax in England, Wales and Northern Ireland – when workers start paying 40% instead of the standard 20% rate – was frozen at £50,270 over the same period. The higher rate was also frozen at £150,000.
Hunt is now looking at extending the threshold freezes for a further two years, until 2027-28, which would mean three million workers will be dragged into higher income tax bands.
The Treasury has release a video where the chancellor talks about the "difficult decisions" to "restore stability" in Britain.
The UK is facing the effects of the global economic crisis.
Difficult decisions need to be taken now to drive down inflation - the hidden tax eating into household budgets.
The Cabinet has set out why we are prioritising stability, growth and public services ⬇️ pic.twitter.com/VOUg5AMBeh
— HM Treasury (@hmtreasury) November 17, 2022
Pension tax freeze
The chancellor is also expected to announce a further two-year freeze on the lifetime allowance on pension savings in the Autumn budget on Thursday. This stealth raid on pensions would cost saver as much as £260,000 in lost allowances by 2018, The Telegraph first reported.
Council tax hikes
Also believed to be under consideration is a plan to hike the amount that local authorities can increase council tax by without holding referendums.
Current rules allow only a maximum increase of 2.99% per year without a local referendum, but some councils are facing a huge budget deficit and have warned that they might even go bankrupt without additional funding.
The plan would allow councils to raise council tax by 5%, pushing the average bill above £2,000.
Changing the rules and allowing council tax to increase by 5% would mean band D property owners face paying an extra £100 per year, while someone in a band H property could be charged up to £200 extra per year, according to Interactive Investor.
The Tory manifesto in 2019 said local people would continue to have the final say on council tax, being able to veto "excessive rises".
The threshold for when the 45% rate of income tax kicks in for the highest earners could also potentially be decreased from £150,000 to £125,000
Speaking to the BBC, the chancellor said that “we are going to see everyone paying more tax” but those who earn the most will have to make larger sacrifices.
He also said he “will be asking everyone for sacrifices” but recognises there is “only so much we can ask” from people on the lowest incomes.
Benefits and the triple lock
An announcement is likely on whether benefits and pensions will rise in line with inflation.
A poll conducted by Age UK revealed that 75% think the government should maintain the mechanism which means pensions rise by the highest of 2.5%, inflation or average earnings.
The triple lock – a Tory manifesto pledge – was suspended last year but was set to be reinstated from April next year.
However, prime minister Sunak has refused to commit to it.
“For anyone who receives a state pension, this is a major concern, especially if they’ve based spending decisions on having this extra income in April,” Susannah Streeter and Sarah Coles from Hargreaves London, said.
“However, for those who are utterly reliant on the state pension or any other benefits, it would be a terrible blow,” they added.
Sunak has hinted the intends to raise benefits in line with inflation, saying: ““we will put fairness and compassion at the heart of all the decisions we make and I am confident people will see that next Thursday...fairness and compassion will be at the heart everything we do”
Inflation just hit a new record high of 11.1% driven by energy and food prices.
Some stats behind the rising cost of shopping … pic.twitter.com/rWcRBKFPUS
— Mark Simpson (@BBCMarkSimpson) November 16, 2022
Hunt is expected to make the support plan for energy bills less generous from April, instead switching to more targeted measures in order to save the Treasury billions.
The chancellor is likely to use his autumn statement to say the need to save money and reduce state borrowing will require the household energy price cap to rise from £2,500 to an expected £3,000 to £3,100, according to The Guardian.
Previous prime minister Liz Truss had planned a massive support package when she was in Downing Street; limiting the average unit price for two years. This "energy price guarantee" meant that typical households would pay no more than £2,500 on gas and electricity annually. But Sunak is worried about the cost, meaning that from April 2023 most of us will face a much higher energy cap of around £3,000.
There may be an increase in taxes on the profits of energy companies, as these have increased dramatically following the sharp rise in oil and gas prices. Hunt is said to be considering increasing the windfall tax on oil and gas giants from 25% to 35% while also expanding the levy to electricity generators.
Social care vs bankers’ bonuses
The cap on social care costs announced by Boris Johnson could also be delayed by at least two years, meaning that people no longer pay more than £86,000 towards it in their lifetime. Campaigners have already flagged concerns about any such decision.
Meanwhile, Hunt is expected to follow his predecessor Kwarteng and lift the cap on bankers’ bonuses.
Chancellor Jeremy Hunt will deliver his highly-anticipated autumn budget in the House of Commons this Thursday, November 17.
Watch: When is the Autumn Budget and what to expect?