A quick summary of some of the standout items for employers to consider from The Chancellor’s Autumn Statement on 17th November 2022.
1.The freezing of most tax thresholds until 2027/28 is not really an immediate issue for employees or employer, as its effectively just an extension of the frozen threshold policies announced in 2021 by Rishi Sunak.
This will cause financial pain down the line for employees, but no real change in the tax year immediately ahead. It is also worth noting that the National Insurance (NI) threshold has only very recently risen to mirror the Income Tax starting threshold.
It follows that the freezing of this threshold won’t really be felt for some time either.
2. Lowering the Additional Rate of Income Tax threshold from £150,000 to £125,140 from April 2023 will clearly impact high earners, and the freezing of that threshold will capture more people more quickly over time too.
The traditional response to this problem by employers and employees would often be to use pension savings as a tax-efficient tool (and for some this remains a viable option), but the freeze in the Pensions Lifetime Allowance (see (3) below) makes that process far more challenging.
3. The Pensions Lifetime Allowance is already frozen and currently stands at a level far lower than it was when introduced in 2006, and even lower still in real terms. This suggests that pension planning for higher earners (and now even some middle-income earners) becomes even more difficult and delicate.
Employers will need to consider high-earner strategies that support workers, and in particular there will be an increased need for financial advice and/or guidance to ensure that employees’ retirement savings don’t exceed the Pensions Lifetime Allowance.
4. The very significant increases in National Living Wage and National Minimum Wage levels will hit many marginal employers extremely hard indeed – at a time that they may not be able to absorb this new cost.
This increase will also add pressure to keep pay differentials further up the pay grades creating yet more cost pressures for employers.
It’s also worth noting that use of existing salary sacrifice schemes may need to be revisited to ensure that such usage (particularly where several cumulative sacrifices are in place) does not inadvertently drop pay below the new legally required minimum levels.
5. Given statements made immediately after Jeremy Hunt became Chancellor, it is rather surprising that the government’s Energy Price Guarantee (not to be confused with the Energy Price Cap) will be extended to all households from April 2023, without any means testing.
Nevertheless, this is good news as high energy costs are a real brake on consumer finances and spending, and additional targeted support for the very poorest in society is clearly welcome.
That said, the new Energy Price Guarantee of £3,000 from April 2023 to March 2024 is still £500 more than the current guarantee of £2,500 which runs until March next year.It should also be remembered that households are currently in receipt of a one-off support payment of £400 from the government, which is not intended to be repeated in April 2023.
So, the £500 increase in the Energy Price Guarantee plus the loss of the £400 support currently being paid will leave the average price rise for energy use at around £900 per household, per year for most middle-income households. This is another very significant inflationary challenge for employees to absorb.
Overall, the news for employers and employees from this statement is perhaps not as bleak as initially feared in the 2023/24 tax year. But over time the stealth taxes of threshold freezes will take their toll, particularly given that the nation has not experienced a period of real growth in incomes since the financial crisis of 2007/8.
It should also be noted that nothing in the Chancellor’s statement changes the underlying fundamentals facing employees at the moment. Inflation is at a 40 year high; interest rates are rising (and expected to increase yet again next month) leading to a mortgage burden higher than at any times since the early 1990s, and a recession – or at the very least a very long period of economic stagnation – looks set to last right the way through 2023 and possibly well into 2024.
It follows that employers need to support employees, if not financially then at least practically with financial wellbeing strategies and tools to help workers take control of their finances in these very difficult times and beyond.