Chancellor Jeremy Hunt has warned that everyone will be paying "a bit more tax", but stressed it wouldn't be all bad news. Here's what to expect in today's 2022 Autumn Statement.
Jeremy Hunt, the new Chancellor of the Exchequer, will deliver the Autumn Statement later today – and it’s likely to make for rather uncomfortable viewing.
The last month or so has been a bit of a disaster when it comes to the public finances.
Most notably, the now-infamous mini-Budget triggered a sharp fall in the value of the pound and sent mortgage rates rocketing.
Since then, the message from the (new) Government has very much been one of austerity and filling the hole in our public finances.
Indeed, one of the first things Hunt did in his role as chancellor was to undo many of the giveaways announced in the mini-Budget, like reducing the length of the energy price guarantee and reinstalling the planned increase to Corporation Tax.
And it seems likely that there will be plenty more important announcements in today's statement.
Speaking to Sky News, Hunt said "we are all going to be paying a bit more tax, I’m afraid," before adding it was "not just going to be bad news."
So which taxes will the chancellor have his eye on? And which benefits might be in the firing line?
Here's what to expect in the 2022 Autumn Statement.
Freezing thresholds - tax hikes by stealth
One tactic that has been widely leaked is that Hunt is likely to freeze certain tax thresholds.
For example, this would mean keeping the current Income Tax band thresholds in place for the next few years, or locking in the Inheritance Tax threshold at its current level until close to the end of the decade.
Doing so would actually increase the receipts to the Treasury, through what’s called ‘fiscal drag’.
So as wages are rising ‒ at a rate of 6% according to the latest figures from the Office for National Statistics ‒ more people will be dragged into paying the higher and additional rates of Income Tax.
Indeed, it means more people will pay Income Tax in the first place.
It’s a similar story with Inheritance Tax.
Currently, estates have to be worth more than £325,000 before they start paying the tax, with the Government reportedly planning to freeze that level for longer.
With property prices having increased at an extraordinary rate over the last few years, it means far more estates will be subject to the tax, increasing the money making its way to the taxman.
Read: how to cut your Inheritance Tax bill
Increasing Income Tax rates
There has been talk that Hunt is looking at increasing the top rate of Income Tax from 45% to 50%. This could be accompanied by lowering the threshold at which it is paid from £150,000 to £140,000.
It would mark quite the turnaround from Kwasi Kwarteng’s attempt to scrap the additional rate of Income Tax entirely just a matter of weeks ago.
State Pension triple lock protected?
The Government’s communications around the State Pension triple lock have been little short of a farce of late.
Whether it is being backed or likely to come under review seems to change by the day, which has inevitably led to a lot of stress among the nation’s eldest.
However, it’s understandable if those in the Treasury are a little nervous about leaving it in its current form.
The triple lock means that the State Pension increases each year by the largest of the following three figures: the rate of inflation, the rate of wage growth, or 2.5%.
With inflation currently above 10%, that would mean a significant increase for pensioners and a massive expense for the Government.
The triple lock has been adapted before ‒ wage growth was temporarily removed as a measurement this year, for example, because of the rapid rate at which wages increased followed the end of the furlough scheme.
Scrapping the triple lock would be difficult politically, at a time when the Government is already in a rocky place, but it may be that continuing with it in its current form is unsustainable.
Huge Council Tax hikes?
We've written before about how rapidly Council Tax has been rising in recent years, but next year's hikes could prove particularly brutal.
At present, there is a cap on the rate at which councils can hike these bills without having to hold a referendum, which is around 3%.
However, there are rumours that the Government is considering lifting - or removing entirely - the threshold for a referendum.
If that happens, expect many councils to announce massive hikes for the new tax year in April.
Earlier this week, the County Councils Network, a cross-party special interest group of the Local Government Association, warned that "even if local authorities raised Council Tax by 3% and the Chancellor does not reduce their budgets further, those councils face a funding gap of £821m."
State benefits
One of the big controversies in the closing days of the Truss premiership was around the approach to benefits.
There were suggestions that the Government would go back on its previous pledges to increase benefits in line with inflation from April.
This would obviously be an enormous blow for anybody receiving some level of state support, given the rate at which prices are already rising, and caused some upset among the backbenches.
Hunt will likely take this opportunity to clarify what is actually happening next year.
National Insurance hike?
National Insurance is another tax which has been subject to a very inconsistent approach from the Government of late.
The tax went up by 1.25 percentage points in April, with the intention of raising funds for the NHS and social care.
However, with the cost of living crisis kicking in, Rishi Sunak ‒ at that point the Chancellor ‒ increased the threshold at which point you start paying National Insurance.
The increase to the tax rate was then ditched by Truss, and was one of the few things she did which was not immediately reversed by Hunt when he became Chancellor.
However, there has been speculation that it’s a levy that the new administration will return to, potentially reintroducing the higher tax rate for those on the higher or additional rates of Income Tax.