High earners will have to pay more tax under Jeremy Hunt’s plan to fill a £55 billion hole in the government’s finances.
The chancellor said he was “asking those with more to contribute more” as he tries to repair the damage done to the economy by Covid-19, the war in Ukraine and Kwasi Kwarteng’s disastrous mini-budget.
He announced that he was reducing the salary threshold at which workers begin paying the 45p top rate of income tax from £150,000 to £125,140.
It means thousands more will start paying the so-called “additional rate”, raising billions of pounds of extra revenue for the Treasury.
But confirming that all workers will pay more tax, he also froze the salary thresholds for the other income tax rates.
That means more workers will be dragged into paying the 20p and 40p rates as their pay increases.
Hunt also set out plans to squeeze public spending to help balance the nation’s books.
Delivering his autumn statement to the Commons, Hunt said he was setting out a “balanced plan” to bring down inflation and repair the public finances.
He said: “I have tried to be fair by following two broad principles: firstly, we ask those with more to contribute more; and secondly, we avoid the tax rises that most damage growth.
“Although my decisions today do lead to a substantial tax increase, we have not raised headline rates of taxation, and tax as a percentage of GDP [gross domestic product] will increase by just 1% over the next five years.
“I start with personal taxes. Asking more from those who have more means that the first difficult decision I take on tax is to reduce the threshold at which the 45p rate becomes payable from £150,000 to £125,140. Those earning £150,000 or more will pay just over £1200 more a year.”
On public spending, Hunt said it would still go up - but by less than previously thought, while departments will have to find billions of pounds worth of savings.
“We have to take difficult decisions on the public finances,” he said. “So we are going to grow public spending – but we’re going to grow it slower than the economy.
“For the remaining two years of this spending review, we will protect the increases in departmental budgets we have already set out in cash terms.
“And we will then grow resource spending at 1% a year in real terms, in the three years that follow.
“Although departments will have to make efficiencies to deal with inflationary pressures in the next two years, this decision means overall spending in public services will continue to rise, in real terms, for the next five years.”
Meanwhile, Hunt also confirmed that he was extending and increasing the windfall tax on the excess profits of energy firms.
He announced that the tax rate will increase from 25% to 35% and run for two more years until 2028.
And he confirmed that benefits and pensions will both rise by inflation, meaning a 10.1% increase.
Hunt said: “There have also been some representations to keep the uplift to working age and disability benefits below the level of inflation given the financial constraints we face.
“But that would not be consistent with our commitment to protect the most vulnerable so today I also commit to uprate such benefits by inflation with an increase of 10.1 per cent. That is an expensive commitment costing £11billion.”
On pensions, he added: “The cost of living crisis is harming all pensioners so because we have taken difficult decisions elsewhere in this statement, I can today announce that we will fulfil our pledge to the country to protect the pensions triple lock.
“So, in April, the state pension will increase in line with inflation, an £870 increase which represents the biggest ever cash increase in the state pension.
“To the millions of pensioners who will benefit from this measure I say – now and always, this government is on your side.”