We wait for official confirmation that the Prime Minister, as well as the Chief Chancellor of the Exchequer, have made clear their plans for the Autumn Statement. The fiscal announcement will be made amid the battle against inflation, the rise of interest rates, and perhaps, most important of all the lead-up to the upcoming General Election.
The government would surely want to enter that election with the economy growing, inflation decreasing the economy booming, and the capability to make voters feel better by offering tax breaks. In this blog, we review the current fiscal and economic situation and discuss the problems that the Chancellor faces.
£11 billion boost
The public finances of the UK for July were more positive than was previously anticipated. According to the Office for National Statistics (ONS) the government lent an amount of £4.3 billion, thanks to tax receipts that have been unexpectedly robust.
The July borrowing figure was the fifth highest amount since records began in the ONS and the £7.7 billion that was spent on servicing the nation’s debt, which is a record. The total amount of debt owed is equivalent to 98.5 percent of the country’s GDP.
This fiscal year, the government has racked up £56.6 billion, which is a substantial increase over last year’s borrowing, but £11.3 billion lower than Office for Budget Responsibility (OBR) projections, upon which the Treasury is based its spending and tax policy.
The unexpected headroom increase led to calls from a few Conservative MPs to cut taxes to spur economic growth and others are pledging to eliminate inheritance taxes (IHT).
Peacetime high
However, the Chancellor Jeremy Hunt ruled out any significant changes to ease the tax burden that has hit an all-time record and is set to rise.
The amount the government has to pay for borrowing has risen significantly as a result of an increase of the rate base as well as the massive amount of bonds that are offered on financial markets to finance debt. The overall state of the finances of the government is more likely to be dire than anticipated, even with the £11 billion increase so far this year.
Mr. Hunt stated:
As inflation decreases it’s crucial to ensure that we do not alter our strategy and remain responsible in the management of our public finances. Only by adhering to our strategy will we be able to reduce the rate of inflation by half and boost the economy and decrease the amount of debt.
Pensions bills that are eye-watering
In addition to the strain on public finances is a projected major rise in the state pension as a result of Triple lock.
The triple lock implies that your state pension is set to increase in April 2024 based on the greater amount of CPI inflation by September 20, 2023. an average increase in wages from May and July 2023, or 2.5 percent.
Inflation in wages was 8.2 per cent from April 2023 and June 2023. The wage figures for July are scheduled for release in September however, if wage growth remains at the same rate, then the state pension will increase by £869 in April, rising to £11,469. Even if wage inflation decreases it is predicted that inflation will climb from 6.8 percentage from July, to 7.1 percentage in August.
Research conducted by the investment website Interactive Investor shows that the triple lock on state pensions could reach an eye-watering £10 billion by 2024. The figure is £4 billion more than that which the Department of Work and Pensions had predicted in March. It will increase the total cost for state pensions up to £138 billion.
Savers are increasingly slapped on tax bills
This grim news for public finances is not going to stop demands that the Chancellor reduce taxes or remove levels in his Autumn Statement. This includes calls for a higher threshold for the Savings Allowance, which is frozen.
Tax is paid to individuals on the interest earned on savings that are higher than the personal savings allowance that is currently set at £1,000 for taxpayers with basic rates and £500 for taxpayers with higher rates. Additional rate taxpayers are not eligible for an exemption and are taxed on any interest they earn.
However, higher interest rates will force over one million taxpayers to pay taxes on their savings this year’s tax year, as per research conducted by an investment company AJ Bell.
In the tax year 2023/24 in 2023/24, it is expected that more than 2.7 million people will be paying interest tax. Which is up by 1 million over the course of an entire year. This year’s projected total is more than 1.4 million taxpayers who pay the basic rate which has quadrupled in only four years, according to AJ Bell’s research discovered.
The Chancellor’s space to keep those who have modest cash reserves out of the tax net is yet to be determined.
This Autumn
As the UK most respected accountants, we will help you understand this Autumn Budget. And how it can affect your company. Our accountants are ready to help you answer any questions that you may have regarding the Budget. As well as your company’s accounting and tax optimization, compliance and more.
If you are in need of an accountant you can confide in with your financial matters, Account-Ease have experts in your area. To get expert advice, talk to an accountant at 0208 133 4599.
