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Chancellor Jeremy Hunt will deliver his Autumn Statement on Wednesday with slightly more money to play with than he did earlier this year.
Although the Government is still grappling with record-high borrowing and low growth, the effects of persistently high inflation have meant the Government has had more income from tax.
With a general election expected sometime next year, Mr Hunt and Prime Minister Rishi Sunak will likely be keen to use the Autumn Statement and next year’s Spring Budget to ease the burden on families struggling amid the cost of living crisis.
Here’s how much money Jeremy Hunt has to play with in the Autumn Statement on Wednesday:
How much money is raised through income tax?
In the 2023-24 tax year, the Treasury is expected to raise around £268 billion from income tax, making up 28 per cent of all the money the Government gets.
This total is up significantly from the previous tax year, when the total raised through income tax was £249 billion.
This increase is largely due to wage inflation increasing the amount people are paying through tax or pushing them into higher tax bands.
Income tax is the largest single income source for the Treasury, followed closely by National Insurance contributions and Value Added Tax (VAT).
National Insurance is projected to bring in £172 billion this year, down from £178bn the previous year. This drop is largely due to the reversal of the 1.25 per cent increase in National insurance contributions which was in effect between 6 April to 5 November 2022.
How much money is raised through business taxes?
The Government raised £83 billion from corporation tax, the main tax paid by limited companies, in the 2022-23 tax year and is forecast to rise to £85.2 billion this year.
Business rates, a charge levied on commercial properties such as shops and pubs, are also set to rise from £25 billion in the last tax year to £30 billion in the current tax year.
Some of the increase in corporation tax has been offset by the Government’s “full expensing” policy, which was announced at the Spring Budget.
It allows companies to claim a 100 per cent deduction from taxable profits for the purchase of new equipment or machinery, reducing the amount they are required to pay in corporation tax.
How much extra money does Jeremy Hunt have for his Autumn Statement?
The exact amount of additional fiscal headroom that Mr Hunt has will be confirmed alongside the Autumn Statement in the Office for Budget Responsibility’s (OBR) report.
Multiple sources report, however, that it is somewhere between £10 billion and £13 billion, thanks largely to higher tax receipts, as well as lower costs for the maintenance of Government debt. JPMorgan, however, predicts that the Chancellor could have up to £26.5 billion to play with before any other policy measures are considered.
While the potential headroom is higher than the £6.5 billion that the Chancellor had to spare when he delivered his Spring Budget, it still could be below the average £25 billion headroom available to the Treasury since 2010.
The higher income from tax is largely due to a phenomenon known as “fiscal drag” – when wages increase but tax thresholds do not, pulling more people into higher tax bands.
HMRC figures show that 4.2 million more workers now pay the 20 per cent rate of income tax compared with three years ago, while 1.6 million have been pulled into the 40 per cent rate.
How much could tax cuts in the Autumn Statement cost?
One option reportedly being considered by Mr Hunt is cutting income tax rates, with the rates having remained unchanged since 2018. He could also adjust the tax brackets, which are the amounts at which you begin paying each rate of income tax.
Currently, workers pay 20 per cent income tax on any amount you earn between £12,571 and £50,270, known as the basic rate, and 40 per cent on income between £50,271 and £125,140, the higher rate.
It has been suggested that Mr Hunt could bring in a 1p cut for the basic rate of income tax, bringing it down to 19 per cent, in a move that could cost the Government around £6 billion.
Many business groups are calling on the Chancellor to extend the 75 per cent business rates relief discount for retail, hospitality, and leisure firms.
The policy was forecast to cost £2.3 billion in the 2023-24 tax year, and is set to expire in April 2024.
There have been reports that the Chancellor is considering extending the “full expensing” policy for businesses. This policy was due to expire at the end of the 2025 tax year, but Mr Hunt could extend it or make it permanent.
According to the OBR’s report from the Spring Budget, the temporary measure was set to cost £8.0 billion in 2023-24, £10.7 billion in 2024-25 and £8.7 billion in 2025-26.
However, the report notes that, by 2027-28, overall tax receipts will be £2.2 billion higher thanks to the policy driving up business investment.
In the long run, therefore, it could remain very cost-effective for Mr Hunt to keep the policy in place.
