Autumn Statement 2022: UK officially in recession amid gloomy economic forecasts

Chancellor Jeremy Hunt admitted the UK “is now in a recession” during his Autumn Budget statement on Thursday.

According to the Chancellor, the plans outlined in the Budget will help inflation drop “sharply” from 9.1% this year to 7.4% in 2023.

However, the EY ITEM Club, a leading UK economic forecasting group, predicts inflation will decline faster than the Office of Budget Responsibility (OBR) expects.

The Chancellor said the government will deliver £55bn of spending cuts and tax rises in a bid to reduce inflation and stabilise interest rates, but promised that it will be delivered in a “balanced way” to support the UK economy.

However, the government’s fiscal activity, according to Laurence Field, corporate tax partner at Crowe UK, highlights that “the government has pretty much given up on significant growth for the rest of this parliament.”

“Really growing the economy is likely to be someone else’s problem,” Field added.

Such sentiments come after the Chancellor announced tax measures that “will bring more people into higher tax bands and add more complexity to the system for many taxpayers,” according to Frank Haskew, head of taxation strategy at ICAEW.

Hunt confirmed there will be a “substantial” increase in tax but was quick to point out that the government will not raise headline rates of taxation.

CGT allowances cut

The Chancellor will cut the annual exemption amount for capital gains tax (CGT) from £12,300 to £6,000 from April 2023.

It will then fall to £3,000 from April 2024 – its lowest level since 1996.

This makes the disposal of assets a more “tax-heavy and much less attractive option,” according to Angela Keery, head of tax at Baker Tilly Mooney Moore.

Similar sentiments were shared by Katharine Arthur, head of private client at haysmacintyre, who pointed out that “halving the annual exempt amount for [CGT] from April next year will hit many business owners and property investors.”

Arthur added: “Many more taxpayers will also be required to file tax returns to report capital gains, adding more to HMRC’s workload.”

£14bn raised from windfall tax increases

The Chancellor plans to increase the windfall tax on oil and gas companies from 25% to 35% and extended by two years, until March 2028.

The take hike is expected to raise £14bn in 2023.

Hunt told lawmakers in the House of Commons that he had “no objection” to windfall taxes if the energy companies’ profits were produced by a surge in energy prices.

“The key to windfall taxes is whether they have retrospective effect.” Retrospection diminishes the confidence of potential investors, adds Crowe UK’s Field

“Unfortunately, it looks like we have a retrospective tax given recent investments in new forms of energy. Businesses will need to hope that the taxes are indeed temporary.”

No clarity on IR35 reforms

After months of uncertainty regarding IR35 rules, the self-employed have been left in the dark with no update in the Autumn budget.

As part of the UK government’s ‘Growth Plan’ outlined in September’s mini-Budget, then Chancellor Kwasi Kwarteng laid out plans to repeal the 2017 and 2021 changes to the off-payroll working rules to simplify the UK tax system.

But a month later, Hunt delivered a surprise economic statement effectively reversing a raft of measures outlined by his predecessor. Among them the decision to repeal the 2017 and 2021reforms to the IR35 off-payroll working rules.

According to Seb Maley, CEO of IR35 specialist consultancy firm Qdos, the Conservative government must “address the fundamental flaws which continue to plague the IR35 rules and see thousands of contractors forced into zero rights employment”.

Maley maintains that if Hunt believes “he’s put the issue of IR35 to bed, he’s mistaken”.