This morning Jeremy Hunt delivered his Autumn Statement. As expected taxes are up and Government spending is down, but exactly where the latter cuts, which are estimated to be £30 billion, will fall is not clear. That is particularly so as the NHS and Social Care are getting £8 billion more and schools £2.3 billion more.
Infrastructure spending remains also with Sizewell C nuclear power station going ahead and HS2 to Manchester plus other rail projects. Comment: a great pity that HS2 has not been canned which would save many billions of pounds.
As a retired taxpayer with significant dividend income and capital gains in some years (not this one I hasten to add), the tax increases are not as bad as they might have been. The pensioners “triple-lock” remains in place when my feeling is it should not have been retained, while with a lot of our assets in ISAs and SIPPs the damage won’t be too bad.
There is also continued support worth £26 billion for energy bills with £300 going to pensioners and the energy price guarantee will be extended past April 2023.
The big personal tax increases will come from a reduction in the threshold for the higher rate of 45p to £125,140 while income tax, inheritance tax and National Insurance thresholds will be frozen for a further two years until April 2028.
The tax-free dividend allowance will be reduced to £1,000 next year and to £500 from April 2024. The exempt amount of capital gains will be reduced to £6,000 next year and to £3,000 from April 2024, but capital gains tax rates are otherwise unchanged so there should be no rush to sell assets to realise gains.
A rise in the Energy Profits Levy and a new tax on the extraordinary profits of electricity generators will raise £25 billion. The former will hit oil/gas producing companies unless they can offset it with investment allowances for developing UK oil and gas extraction. Comment: I hope Just Stop Oil take note of this poke in the eye and give up their campaign.
There will also be an impact on renewable energy generators with a 45% levy on “extraordinary profits” – defined as electricity sold above £75MWh.These changes seem to have been well anticipated and the prices of renewable energy trusts (wind farms etc) not significantly changed so far today at the time of writing while a UK gas producer I hold has risen.
It is always unfortunate though that the Government is making legislation that changes the likely future profits of these companies on which their long-term business plans, and my investment decisions were based.
There is also some jam for those living on means tested benefits to help with the cost of living. Benefits will rise by the rate of CPI meaning they will go up by 10.1%. There will also be £6.6 billion provided to improve the energy efficiency of houses and business premises which is a rational move when the UK compares very badly with similar European countries in insulation of buildings and construction quality.
The Chancellor has also announced that electric cars will no longer be exempt from vehicle excise duty from April 2025. This is a sensible move as the lack of tax on them was undermining the tax base and that incentive will no longer be necessary.
In conclusion I suggest these tax/spend changes are a reasonable compromise and seemed to have had minimal impact on the stock market. I quote from the Chancellor: “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 fuelled 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.”
Raising taxes won’t be liked by some Conservative MPs but I think they will accept the changes as necessary. The key is to ensure that spending cuts actually happen and that there is no back-sliding on that commitment.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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