Millions more Britons will pay more tax as Jeremy Hunt cut the top-rate of tax threshold and announced freezes on several other taxes in his autumn statement.
The total amount of savings from the autumn statement has been costed at £55bn, through raising taxes and cutting government spending.
However, in real-world costs, UK households’ disposable incomes will fall by 7.1% – the lowest levels since records began in 1956/7, with incomes down to 2013 levels, according to the independent Office for Budget Responsibility.
Hunt announcing tax rises and spending cuts – follow autumn statement live
Some of the main announcements:
• The higher rate of tax threshold reduced to £125,140
• Benefits and state pension to rise in line with inflation
• Windfall tax extended until March 2028 and increased to 35%
• Electric cars no longer exempt from car tax from April 2025
• An extra £2.4bn per year on schools
• NHS to get £3.3bn and adult social care £1bn next year and £1.7bn in 2024
• Freeze on income tax personal allowance, national insurance and inheritance tax thresholds
Read more: Key announcements from the autumn statement
The chancellor said the government is introducing two new fiscal rules: that underlying debt must fall as a percentage of GDP by the fifth year in a rolling five-year period, and public sector borrowing over the same period must be below 3% of GDP.
He said he had “tried to be fair” in his decisions by asking those “with more to contribute more” and avoiding tax rises that “most damage growth”.
Mr Hunt promised to “protect the vulnerable” and said his plan will lead to “a shallower downturn and lower energy bills”, while revealing his three priorities: “stability, growth and public services”.
But opposition parties and unions have accused the chancellor of holding the country back as Labour said the plan means “working people are paying the price” for the Tory’s “failure”.
Higher tax rates for the wealthiest and energy companies
The chancellor said the 45p higher rate of tax will now be payable from £125,140, as opposed to the current £150,000.
He said those earning £150,000 or more will now pay just over £1,200 more a year.
Mr Hunt also expanded and increased the windfall tax so from 1 January 2023 until March 2028 energy giants will have to pay 35%, instead of the current 25% on their profits.
And there will be a temporary new 45% levy on electricity generators, which is in addition to the tax on the companies that provide energy to households and businesses.
He also said electric car owners will no longer be exempt from vehicle excise duty from April 2025.
And he announced the government, as expected, will proceed with the building of the new Sizewell C nuclear plant in Suffolk, which will create 10,000 highly skilled jobs and provide energy to the equivalent of six million homes over 50 years.
Extra cash for schools and the NHS
Much of the chancellor’s statement had been pre-briefed following the economic turmoil the mini-budget created after his predecessor announced surprise unfunded tax cuts.
But Mr Hunt did pull a rabbit out of his hat as he announced an extra £2.3bn each year will be invested in schools for the next two years.
As was expected, he increased the NHS budget by £3.3bn and said he has asked former Labour health secretary Patricia Hewitt to advise on how to make sure the new Integrated Care Boards work properly.
Adult social care will get £1bn more next year and £1.7bn in 2024 and he said altogether, along with previous commitments, that means the government is committing to a “record £8bn” package for the health and social care system.
‘Stealth taxes’
There will be a freeze on income tax personal allowance, the main national insurance thresholds and inheritance tax thresholds for a further two years, until April 2028.
These have been branded “stealth taxes”, with the freeze on income tax to bring £6.8bn for the government as more people will be pushed into a higher tax bracket.
On personal income allowances, he said the dividend allowance will be cut from £2,000 to £1,000 next year then to £500 from April 2024.
The annual exempt amount for capital gains tax, which is paid on the profit of selling an asset that has increased in value such as property, will also be cut from £12,300 to £6,000 next year then to £3,000 from April 2024. It means people will have to pay tax at a lower threshold than before.
Cost of living and minimum wage help
On help for energy bills, Mr Hunt said the Energy Price Guarantee will continue for a further 12 months from April 2023 at a higher level of £3,000 per year for the average household. It is currently capped at an average of £2,500.
There will also be additional cost of living payments next year for the most vulnerable, with £900 for households on means-tested benefits, £300 for pensioner households and £150 for those on disability benefits.
Social housing rents will have their increases capped at a maximum of 7% in 2023-24, he added.
And the hourly minimum wage will increase by 9.7% from April next year to £10.42 from the current £9.50.
Pensions and benefits rise
Mr Hunt committed to maintaining the triple lock on pensions, which promises to increase the state pension each year in line with the highest of: inflation, average earnings or 2.5%. At the moment, that is inflation which reached a 41-year high on Wednesday of 11.1%.
From April, pensions will rise in line with inflation of 10.1%, meaning an £870 annual increase.
Benefits will also rise in line with inflation while more than 600,000 more people on Universal Credit will be made to meet with a work coach to get more people into the workforce and in better-paid jobs.
On Sunday, Mr Hunt told Sky News everybody would be facing higher taxes but “it’s not just going to be bad”.
He also said those earning the most would be paying more as he promised to protect the most vulnerable.
Some senior Tory MPs had been rallying against higher taxes ahead of the autumn statement, with two dozen Conservatives sending an 11th-hour petition to the chancellor on Wednesday evening asking him to cut fuel duty.