In less than two months, the Chancellor is putting the finishing touches on the government’s second financial plan.
The majority of what his predecessor Kwasi Kwarteng announced in his mini-budget on September 23 is anticipated to be dismantled by Jeremy Hunt.
Mr. Hunt will release his Autumn Statement – a Budget in all but name – on Thursday to, as he puts it, “bring us back to healthy growth.
The Treasury will not confirm anything until the statement is out. However, we are aware of some of the probable announcements.
Budget cuts versus tax hikes
After the uncertainties of recent weeks, Mr. Hunt stated that he intends to lower the size of the so-called fiscal black hole – the difference between the government’s revenues and expenditures. This will necessitate political decisions regarding acceptable levels of debt, tax increases, and spending cuts.
The precise amount of spending reductions and tax increases vary depending on whether policies are approved. However, the conventional belief within the Treasury is that spending cutbacks will outnumber tax increases. This is projected to result in budget cuts of approximately £35 billion and tax increases of approximately £20 billion.
The Treasury is attempting to emphasize that this is a significant departure from the George Osborne administration, during which the vast majority of savings came from spending cutbacks.
However, several Conservative members of Congress are dissatisfied with the impending tax hikes, so political opposition may be forthcoming.
Hidden taxes
This may be a major focus of the Autumn Statement. Stealth taxes include locking the thresholds at which individuals begin paying various tax rates.
Treasury officials have been debating freezing a variety of tax thresholds over the past few weeks. Inflation and wage rises, however, result in people paying more tax since a greater portion of their income falls under a given tax bracket.
The exact designs have yet to be approved, but the indications are that this might be widely utilized. The income tax brackets are likely to remain unchanged until 2028, and the threshold at which individuals begin paying the 45p tax rate may be lowered to £125,000. This is a significant change from when Liz Truss and Mr. Kwarteng intended to eliminate the additional fee.
Energy bills
When she was in Downing Street, Ms. Truss devised a substantial support package that limited the average unit price for two years. This “energy price guarantee” guaranteed that the annual cost of gas and electricity for a typical family would not exceed £2,500.00.
This will not occur under Rishi Sunak since the administration is concerned about the expense. Beginning in April, there will be a more targeted approach.
It is anticipated that the chancellor will still announce a cap of some kind on Thursday, but it will result in higher costs for many individuals. There is likely to be helpful for low-income individuals and senior citizens.
Windfall tax
As chancellor, Rishi Sunak imposed the Windfall Tax on the profits of oil and gas firms. Since then, however, there have been proposals for its duration and scope to be expanded.
This appears to be another revenue-generating opportunity; the question is how. Treasury authorities have considered boosting the tax rate to 35%, extending the duration of the windfall tax, and including electricity generators in its ambit.
Labour seeks to close loopholes. Currently, oil and gas corporations can reduce their tax duty by investing profits in the United Kingdom. Controversy arose when it was revealed that Shell was not responsible for any Windfall Tax, despite having recorded profits of £25.4bn ($30bn) this year – more than double the amount it earned during the same period in 2021.
Social care
Remember the social and health care tax? Boris Johnson intended to attempt to limit the cost of social care in England.
However, it was a tax increase that Conservative members opposed, therefore Ms. Truss abandoned it. Rishi Sunak will not reopen this can of worms, therefore the money it would have raised is no longer available and it is unclear how a cap will be funded.
On Thursday, it is anticipated that the chancellor would delay the adoption of the social care cap for at least two years, or roughly the duration of the budget review. That would postpone the decision until after the general election and leave the door open for the cap to be eliminated.
Triple lock and advantages
This is one of the most important expenditure decisions the Treasury has weighed. Should pensions and benefits increase by the rate of inflation, even though the rate is currently exceptionally high?
Nobody in government will admit this, yet both events are highly probable.
The government’s manifesto included a commitment to the pensions triple lock, an issue about which the prime minister has spoken extensively. The triple lock is popular among Republican voters. And if the prime minister chose to disregard it, he would risk a revolt among Tory lawmakers.
The same applies to benefits. Ms. Truss was under considerable pressure to commit to indexing benefit increases to inflation. Several prominent members of Mr. Sunak’s cabinet, such as Michael Gove and Mel Stryker, were among those who put pressure on her.
Mr. Sunak, in his capacity as chancellor, pledged earlier this year that the increase in benefits would be in line with inflation. Despite the changing economic climate, he would face considerable political backlash if he changed his mind.
Capital Gains Tax
According to reports, the chancellor believes that the heaviest tax burden should fall on those with the broadest shoulders.
This remains to be seen, but the Capital Gains Tax is one tax that appears highly likely to be targeted. The tax is paid on the profit realized from the sale of an asset, such as a second home or stocks.
Uncertainty exists as to whether it would be an increase in the total rate – which one source deemed doubtful – or a modification to the thresholds or exclusions.
