The Autumn Statement 2022 comes at a time of significant economic challenge for the UK and global economy. Putin’s illegal war in Ukraine has contributed to a surge in energy prices, driving high inflation across the world. Central banks are raising interest rates to get inflation under control, which has pushed up the cost of borrowing for families, businesses and governments. Growth is slowing and the International Monetary Fund (IMF) expects a third of the global economy to fall into recession this year or next.
This comes against a backdrop of higher levels of government debt due to the economic impacts of the COVID-19 pandemic and current energy crisis. Debt interest spending is now expected to reach a record £120.4 billion this year. These factors have contributed to a significant gap opening between the funds the government receives in revenue and its spending.
The government’s priorities are stability, growth and public services. Economic stability relies on fiscal sustainability – and the Autumn Statement sets out the government’s plan to ensure that national debt falls as a proportion of the economy over the medium term. This will reduce debt servicing costs and leave more money to invest in public services; support the Bank of England’s action to control inflation; and give businesses the stability and confidence they need to invest and grow in the UK.
To achieve this aim, the government has reversed nearly all the measures in the Growth Plan 2022. The Autumn Statement sets out further steps on taxation and spending, ensuring that each contributes in a broadly balanced way to repairing the public finances, while protecting the most vulnerable. The government’s approach to delivering fiscal sustainability is underpinned by fairness, with those on the highest incomes and making the highest profits paying a larger share.
The Autumn Statement reduces the income tax additional rate threshold from £150,000 to £125,140, increasing taxes for those on high incomes. Income tax, National Insurance and Inheritance Tax thresholds will be maintained at their current levels for a further two years, to April 2028. The government will also reduce the Dividend Allowance and Capital Gains Tax Annual Exempt Amount.
Businesses must also pay their fair share. The Autumn Statement fixes the National Insurance Secondary Threshold at £9,100 until April 2028. The government will implement the OECD Pillar 2 rules, to deliver a global minimum corporate tax rate of 15%. R&D tax credits will be reformed to ensure public money is spent effectively and best supports innovation.
The Autumn Statement sets out reforms to ensure businesses in the energy sector who are making extraordinary profits contribute more. The Energy Profits Levy will be increased by 10 percentage points to 35% and extended to the end of March 2028, and a new, temporary 45% Electricity Generator Levy will be applied on the extraordinary returns being made by electricity generators.
While taking these necessary steps, the government also recognises that businesses are facing significant inflationary pressures. The Autumn Statement sets out a package of targeted support to help with business rates costs worth £13.6 billion over the next 5 years. The business rates multipliers will be frozen in 2023-24, and upward transitional relief caps will provide support to ratepayers facing large bill increases following the revaluation. The relief for retail, hospitality and leisure sectors will be extended and increased, and there will be additional support provided for small businesses.
The government is taking a balanced approach between revenue raising and spending restraint, whilst protecting vital public services. The Autumn Statement confirms that total departmental spending will grow in real terms at 3.7% a year on average over the current Spending Review period. Within this, departments will identify savings to manage pressures from higher inflation, supported by an Efficiency and Savings Review.
To help get debt falling, for the years beyond the current Spending Review period, planned departmental resource spending will continue to grow, but slower than the economy, at 1% a year in real terms until 2027-28. Total departmental capital spending in 2024-25 will be maintained in cash terms until 2027-28, delivering £600 billion of investment over the next 5 years. This includes maintaining the government’s commitments to deliver major infrastructure projects.
While delivering overall spending restraint, the government is prioritising further investment in the NHS and social care, and in schools. Supporting these two public services is the government’s priority for public spending.
The Autumn Statement makes up to £8 billion of funding available for the NHS and adult social care in England in 2024-25. This includes £3.3 billion to respond to the significant pressures facing the NHS, enabling rapid action to improve emergency, elective and primary care performance, and introducing reforms to support the workforce and improve performance across the health system over the longer term.
The NHS’s performance is closely tied to that of the adult social care system, so the government will also make available up to £4.7 billion in 2024-25 to put the adult social care system in England on a stronger financial footing and improve the quality of and access to care for many of the most vulnerable in our society. This includes £1 billion to directly support discharges from hospital into the community, to support the NHS.
The Autumn Statement announces a real-terms increase in per pupil funding from that committed at Spending Review 2021. The core schools budget in England will receive £2.3 billion of additional funding in each of 2023-24 and 2024-25, enabling schools to continue to invest in high quality teaching and to target additional support to the children who need it most.
The government has taken unprecedented steps to help households deal with rising living costs and the energy crisis in 2022-23. The level of spending seen this year, if sustained over time, would add further upward pressures on inflation and interest rates and risk excessively burdening future generations with higher debt. The Autumn Statement sets out steps to taper the support next year and make it more targeted to those who most need it, while also raising more through levies on energy producers.
The Energy Price Guarantee (EPG) will be maintained through the winter, limiting typical energy bills to £2,500 per year. From April 2023 the EPG will rise to £3,000. With prices forecast to remain elevated throughout next year, this equates to an average of £500 support for households in 2023-24. On top of this, to protect the most vulnerable, in 2023-24 an additional Cost of Living Payment of £900 will be provided to households on means-tested benefits, of £300 to pensioner households, and of £150 to individuals on disability benefits. The government will also raise benefits, including working age benefits and the State Pension, in line with inflation from April 2023, ensuring they increase by over 10%.
Alongside direct support, the government is setting a national ambition to reduce energy consumption by 15% by 2030, delivered through public and private investment, and a range of cost-free and low-cost steps to reduce energy demand.
Economic growth is the only way to sustainably fund public services, raise living standards and level up the country. The Autumn Statement sets out measures to boost growth and productivity by investing in people, infrastructure, and innovation. These include additional support to increase labour market participation; increasing public investment in infrastructure across this Parliament; delivering planned skills reforms; and supporting R&D by increasing public funding to £20 billion in 2024-25.
The government will ensure that those sectors which have the most potential for growth – such as digital, green technology and life sciences – will be supported through measures to reduce unnecessary regulation and boost innovation and growth. The Autumn Statement also announces the final Solvency II reforms, which will unlock tens of billions of pounds of investment across a range of sectors.
By taking difficult decisions on tax and spending, the Autumn Statement sets out a clear and credible path to get debt falling and deliver the economic stability needed to support long-term prosperity.