HM Treasury
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The Autumn Statement 2022 speech

The Autumn Statement 2022 speech as delivered by Chancellor Jeremy Hunt.

Introduction

Mr Speaker,

In the face of unprecedented global headwinds, families, pensioners, businesses, teachers, nurses and many others are worried about the future.

So today we deliver a plan to tackle the cost-of-living crisis and rebuild our economy.

Our priorities are stability, growth, and public services.

We also protect the vulnerable because to be British is to be compassionate and this is a compassionate government.

We are not alone facing these problems but today our plan reflects British values as we respond to an international crisis.

We are honest about the challenges and fair in our solutions.

Yes, we take difficult decisions to tackle inflation and keep mortgage rises down.

But our plan also leads to a shallower downturn; lower energy bills; higher long-term growth; and a stronger NHS and education system.

Stability

Three priorities then today: stability, growth and public services.

I start with stability.

High inflation is the enemy of stability.

It means higher mortgage rates, more expensive food and fuel bills, businesses failing and unemployment rising.

It erodes savings, causes industrial unrest, and cuts funding for public services.

It hurts the poorest the most and eats away at the trust upon which a strong society is built.

The Office for Budget Responsibility confirms global factors are the primary cause of current inflation.

Most countries are still dealing with the fallout from a once-in-a-century pandemic.

The furlough scheme, the vaccine rollout, and the response of the NHS did our country proud - but they all have to be paid for.

The lasting impact on supply chains has made goods more expensive and fueled inflation.

This has been worsened by a Made in Russia energy crisis.

Putin’s war in Ukraine has caused wholesale gas and electricity prices to rise to eight times their historic average.

Inflation is high here – but higher in Germany, the Netherlands, and Italy.

Interest rates have risen here – but faster in the US, Canada and New Zealand.

Growth forecasts have fallen here - but fallen further in Germany.

The International Monetary Fund expect one third of the world’s economy will be in recession this year or next.

So the Bank of England, which has done an outstanding job since its independence, now has my wholehearted support in its mission to defeat inflation and I today confirm we will not change its remit.

But we need fiscal and monetary policy to work together – and that means the government and the Bank working in lockstep.

It means, in particular, giving the world confidence in our ability to pay our debts.

British families make sacrifices every day to live within their means and so too must their government because the United Kingdom will always pay its way.

I understand the motivation of my predecessor’s mini-budget and he was correct to identify growth as a priority.

But unfunded tax cuts are as risky as unfunded spending which is why we reversed the planned measures quickly.

As a result, government borrowing has fallen.

The pound has strengthened.

And the OBR says today that the lower interest rates generated by the government’s actions are already benefitting our economy and sound public finances.

But credibility cannot be taken for granted and yesterday’s inflation figures show we must continue a relentless fight to bring it down, including a rock solid commitment to rebuild the public finances.

Richard Hughes and his team at the OBR today lay out starkly the impact of global headwinds on the UK economy and I am enormously grateful to him and his team for their thorough work.

The OBR forecast the UK’s inflation rate to be 9.1% this year and 7.4% next year.

They confirm that our actions today help inflation to fall sharply from the middle of next year.

They also judge that the UK, like other countries, is now in recession.

Overall this year, the economy is still forecast to grow by 4.2%.

GDP then falls in 2023 by 1.4%, before rising by 1.3%, 2.6%, and 2.7% in the following three years.

The OBR says higher energy prices explain the majority of the downward revision in cumulative growth since March.

They also expect a rise in unemployment from 3.6% today to 4.9% in 2024 before falling to 4.1%.

Today’s decisions mean that over the next five years, borrowing is more than halved.

This year, we are forecast to borrow 7.1% of GDP or £177 billion; next year, 5.5% of GDP or £140 billion; then by 2027-28, it falls to 2.4% of GDP or £69 billion.

As a result, underlying debt as a percentage of GDP starts to fall from a peak of 97.6% of GDP in 2025-26 to 97.3% in 2027-28.

I also confirm two new fiscal rules: the first is that underlying debt must fall as a percentage of GDP by the fifth year of a rolling five-year period.

The second, that public sector borrowing, over the same period, must be below 3% of GDP.

The plan I’m announcing today meets both rules.

Today’s statement delivers a consolidation of £55 billion and means inflation and interest rates end up significantly lower.

We achieve this in a balanced way.

In the short term, as growth slows and unemployment rises, we will use fiscal policy to support the economy.

The OBR confirm that because of our plans, the recession is shallower, and inflation is reduced. Unemployment is also lower with about 70,000 jobs protected as a result of our decisions today.

Then, once growth returns, we increase the pace of consolidation to get debt falling.

This further reduces the pressure on the Bank to raise interest rates because as Conservatives we do not leave our debts to the next generation.

So, Mr Speaker, this is a balanced path to stability: tackling the inflation to reduce the cost of living and protect pensioner savings whilst supporting the economy on a path to sustainable growth.

But it means taking difficult decisions.

Anyone who says there are easy answers is not being straight with the British people: some argue for spending cuts, but that would not be compatible with high quality public services.

Others say savings should be found by increasing taxes but Conservatives know that high tax economies damage enterprise and erode freedom.

We want low taxes and sound money. But sound money has to come first because inflation eats away at the pound in people’s pockets even more insidiously than taxes.

So, with just under half of the £55 billion consolidation coming from tax, and just over half from spending, this is a balanced plan for stability.

Tax

I turn first to our decisions on tax. I have tried to be fair by following two broad principles: firstly, we ask those with more to contribute more; and secondly, we avoid the tax rises that most damage growth.

Although my decisions today do lead to a substantial tax increase, we have not raised headline rates of taxation, and tax as a percentage of GDP will increase by just 1% over the next five years.

I start with personal taxes.

Asking more from those who have more means that the first difficult decision I take on tax is to reduce the threshold at which the 45p rate becomes payable from £150,000 to £125,140.

Those earning £150,000 or more will pay just over £1200 more in tax every year.

We are also taking difficult decisions on tax-free allowances.

I am maintaining at current levels the income tax personal allowance, higher rate threshold, main national insurance thresholds and the inheritance tax thresholds for a further two years taking us to April 2028.

Even after that, we will still have the most generous set of tax-free allowances of any G7 country.

I am also reforming allowances on unearned income.

The dividend allowance will be cut from £2,000 to £1,000 next year and then to £500 from April 2024.

The Annual Exempt Amount for capital gains tax will be cut from £12,300 to £6,000 next year and then to £3,000 from April 2024.

These changes still leave us with more generous allowances overall than countries like Germany, Ireland, France, and Canada.

And, because the OBR forecasts half of all new vehicles will be electric by 2025…

…to make our motoring tax system fairer I have decided that from April 2025 electric vehicles will no longer be exempt from Vehicle Excise Duty.

Company car tax rates will remain lower for electric vehicles and I have listened to industry bodies and will limit rate increases to 1ppt a year for three years from 2025.

The OBR expects housing activity to slow over the next two years, so the stamp duty cuts announced in the mini-budget will remain in place but only until 31st March 2025.

After that, I will sunset the measure, creating an incentive to support the housing market…

…and all the jobs associated with it…

…by boosting transactions during the period the economy most needs it.

I now turn to business taxes.

While I have decided to freeze the Employers NICs threshold until April 2028, we will retain the Employment Allowance at its new, higher level of £5,000. 40% of all businesses will still pay no NICs at all.

The VAT registration threshold is already more than twice as high as the EU and OECD averages. I will maintain it at that level until March 2026.

My RHF the PM successfully negotiated a landmark international tax deal to make sure multinational corporations – including big tech companies – pay the right tax in the countries where they operate.

I will implement these reforms, making sure the UK gets our fair share.

Alongside further measures to tackle tax avoidance and evasion, this will raise an additional £2.8 billion by 2027-28.

I have also heard concerning reports of abuse and fraud in R&D tax relief for SMEs.

So I have decided today to cut the deduction rate for the SME scheme to 86% and the credit rate to 10% but increase the rate of the separate R&D expenditure credit from 13% to 20%.

Despite raising revenue, the OBR have confirmed that these measures have no detrimental impact on the level of R&D investment in the economy.

Ahead of the next Budget, we will work with industry to understand what further support R&D intensive SMEs may require.

Next, windfall taxes. I have no objection to windfall taxes if they are genuinely about windfall profits caused by unexpected increases in energy prices.

But any such tax should be temporary, not deter investment and recognise the cyclical nature of energy businesses.

Taking account of this, I have decided that from January 1st until March 2028 we will increase the Energy Profits Levy from 25% to 35%.

The structure of our energy market also creates windfall profits for low-carbon electricity generation so, from January 1st, we have also decided to introduce a new, temporary 45% levy on electricity generators.

Together these taxes raise £14 billion next year.

Finally, I turn to business rates.

It is an important principle that bills should accurately reflect market values so we will proceed with the revaluation of business properties from April 2023.

But I will soften the blow on businesses with a nearly £14 billion tax cut over the next five years. Nearly two thirds of properties will not pay a penny more next year and thousands of pubs, restaurants and small high street shops will benefit.

This will include a new government funded Transitional Relief scheme as called for by the CBI, the British Retail Consortium, the Federation of Small Businesses, and others, benefitting around 700,000 businesses.

Our plan for the cost of living delivers lower inflation, lower mortgage rates, a shallower downturn, and lower unemployment.

But it also involves public spending discipline, so I turn next to how we protect public services through a challenging period.

Public Spending

The Prime Minister’s vision for this country has at its heart a strong NHS and world-class education.

We know that a strong economy depends on strong public services so will protect them as much as we can as we deliver our plan for stability and growth.

We have to take difficult decisions on the public finances.

So we are going to grow public spending – but we’re going to grow it more slowly than the growth of the economy.

For the remaining two years of this Spending Review, we will protect the increases in departmental budgets we have already set out in cash terms.

And we will then grow resource spending at 1% a year in real terms, in the three years that follow.

Although departments will have to make efficiencies to deal with inflationary pressures in the next two years, this decision means overall spending in public services will continue to rise, in real terms, for the next five years.

Before I turn to our plans for schools and the NHS, I start with two other areas of spending.

DWP

The Department for Work and Pensions has a critical role in supporting people into work.

I am proud to live in a country with one of the most comprehensive safety nets anywhere in the world…

…but also concerned that we have seen a sharp increase in economically inactive working age adults of 630,000 since the start of the pandemic.

Employment levels have yet to return to pre-pandemic levels which is bad for businesses who cannot fill vacancies and bad for people missing out on the opportunity to do well for themselves and their families.

So the PM has asked the Work and Pensions Secretary to thoroughly review issues holding back workforce participation due to conclude early in the new year.

Alongside this, I am also committed to helping people already in-work to raise their incomes, progress in work, and become financially independent.

That is why we will ask over 600,000 more people on Universal Credit to meet with a work coach so that they can get the support they need to increase their hours or earnings.

I have also decided to move back the managed transition of people from Employment and Support Allowance onto Universal Credit to 2028…

…and will invest an extra £280m in DWP to crack down on benefit fraud and error over the next two years.

The Government’s review of the state pension age will be published in early 2023.

Defence and international commitments

Our security at home depends on our security overseas, so I turn next to defence and other international commitments.

The privilege of being this country’s Foreign Secretary showed me first hand the enormous respect in which this country is held because the United Kingdom is and has always been a force for good in the world.

Nothing sums that up more than the courage of our armed forces, men and women who risk their lives every day in defence of our territory and our belief in freedom.

Alongside them, I salute the citizens of another country right on the frontline of that fight - the brave people of Ukraine.

The United Kingdom has given them military support worth £2.3 billion since the start of Putin’s invasion…

…the second highest contribution in the world after the United States…

…which demonstrates that our commitment to democracy and open societies remains steadfast.

In that context, the Prime Minister and I both recognise the need to increase defence spending.

But before we make that commitment it is necessary to revise and update the Integrated Review, written as it was before the Ukraine invasion.

I have asked for that vital work to be completed ahead of the next budget and today confirm we will continue to maintain the defence budget at least 2% of GDP to be consistent with our NATO commitment.

Another important international commitment is to overseas aid.

The OBR’s forecasts show a significant shock to public finances so it will not be possible to return to the 0.7% target until the fiscal situation allows.

We remain fully committed to the target and the plans I have set out today assume that ODA spending will remain around 0.5% for the forecast period.

As a percentage of GNI, we were the third highest donor in the G7 last year and I am proud that our aid commitment has saved thousands of lives around the world.

I look forward to working closely with my RHF the Member for Sutton Coldfield, now rightly back in his place in Cabinet, to make sure we continue to play a leadership role in tackling global poverty.

The United Kingdom has also been a global leader on climate change, cutting emissions by more than any other G20 country.

But with the existential vulnerability we face now would be the wrong time to step back from our international climate responsibilities…

Channel website: https://www.gov.uk/government/organisations/hm-treasury

Original article link: https://www.gov.uk/government/speeches/the-autumn-statement-2022-speech

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