Autumn Statement Predictions - Will We See Tax Cuts?

Jeremy Hunt, the Chancellor, is to deliver the Autumn Statement on 22nd November 2023. Tory back benchers have been pushing for tax cuts and with rumours this will be Hunt’s last hurrah due to a planned cabinet reshuffle by the prime minister, what will the Chancellor deliver? Due to the freezing of tax allowances in the last couple of years, the Treasury has some room to deliver tax cuts, but who will benefit? Here are our predictions of who may benefit in the next tax year.

Workers - time to increase the personal allowance?

If the Chancellor were to increase the personal allowance threshold, the tax free income you earn before you start paying income tax, then every taxpayer - whether employed, self employed or director - will benefit.

If for example the personal allowance were to increase to £15,000 from April 2024, this would have mean that many more lower tax earners and pensioners will not pay any income tax at all on their earnings.

What about the 5 million middle-income earners currently paying 40% tax?

The reality is that if the income tax band thresholds increased in line with inflation, the rate at which middle income earners would pay 40% tax on their earnings would have been at £65,000 and over. Currently in England, the 40% threshold sits at £50,570, which means a lot more middle income earners have been paying at the higher rate of income tax in recent years.

If Hunt were to increase the 40% threshold to even £60,000, this would help the cash flow for millions of Britons.

Remember, in Scotland, the income tax thresholds are different, and middle-income Scots pay more income tax than their English counterparts. It remains to be seen if the Scottish Government will follow the Treasury’s lead and increase the higher rate threshold in Scotland at the Scottish Budget on the 15th December - watch this space.

Tory pledge to cut the basic rate of income tax to 16% before the next Parliament, will it happen?

When Rishi Sunak was in the race to become PM, he pledged a cut in the basic rate of income tax from 20% in England to 16% by the end of the next Parliament.

Even if this was to happen, due to the freezing of the personal allowance threshold, the current basic rate of income tax has effectively increased by six percent, so any reduction now will only have a minor impact on the cash flow for workers and families.

This would be the most simple tax cut that the Treasury could make at the Autumn Budget.

What about the rumours on slashing Inheritance Tax (IHT)?

Although this would be a good crowd-pleaser and please Tory back benchers and voters, any change to IHT would mean a hole in the country finances, as IHT currently rakes in around £8 billion a year, and continues to grow, due to high property prices across the UK pushing more people above the IHT tax-free threshold.

The Tory’s may well do something with IHT in order to win back votes ahead of a likely General Election in mid 2024.

Whether IHT is scrapped altogether or even if the tax free allowances are increased, only 4% of estates actually pay it, but despite that, it is still rated the most unpopular tax we have in the UK, mainly on principle.

Whatever Hunt is planning at the Autumn Budget 2023, we hope that he does not over complicate any already complex tax system, at a time when many have little cash flow to play with.