Autumn Statement freezes income tax thresholds and lowers top rate threshold

The Autumn Statement, delivered in November 2022, froze personal income tax thresholds and lowered the threshold for the top rate of tax, according to UK Finance's Household Finance Review for the third quarter of 2022¹. The same statement included a means tested £900 cost-of-living payment for the following year and a commitment to maintain the pensions triple lock¹.

UK Finance, a trade body, set out the measures in its review of household spending, saving and borrowing through the third quarter of 2022, published in December 2022¹. It said the policies "will be felt by households"¹. The review also recorded that the then chancellor announced further measures to stabilise the public finances after the rise in debt servicing costs, and that the Office for Budget Responsibility (OBR) produced its economic and fiscal assessment alongside the statement¹.

The review set the statement against a weakening economic backdrop. GDP fell by 0.2 per cent in the three months to September, after a 0.2 per cent increase in the previous quarter, and the UK economy remained smaller than before the Covid-19 pandemic¹. CPI inflation rose to 11.1 per cent in October, its highest level since 1981, driven by high energy costs and accelerating food price inflation¹. The Bank of England's Monetary Policy Committee increased Bank Rate by 75 basis points in November, to three per cent¹.

The OBR forecast GDP contracting by 1.4 per cent in 2023, with the UK already in recession and not expected to emerge from it until late 2023¹. It expected the squeeze on real incomes to exceed three per cent this year and next, and a near two per cent decline in household consumption as the main contributor to the fall in GDP¹. The review also noted that 1.8 million fixed-rate mortgages were scheduled to mature in 2023, and that new rates on refinancing would put pressure on disposable incomes after basic expenditures¹.

Why it matters for households

The freeze to personal income tax thresholds means the points at which income tax starts to be paid and moves to higher rates stay where they are, so more of a pay rise can fall into tax as wages rise. Lowering the top rate threshold brings more people into the top rate. Both changes take effect through the tax system rather than as a separate bill, and the review does not give the date from which each applies¹.

The £900 cost-of-living payment is described as means tested and due next year, meaning eligibility depends on circumstances; the review does not set out the qualifying criteria or payment dates¹. The commitment to maintain the pensions triple lock concerns how the State Pension is uprated¹.

For mortgage holders, the review points to 1.8 million fixed-rate loans maturing in 2023, where refinancing at then-current rates would reduce the flex in household budgets¹. It also records that half of borrowers taking out a mortgage opted for terms over 30 years, and that personal borrowing to fund larger purchases fell during the quarter¹. The review says earlier mortgage arrears rose, suggesting the expected upturn in the arrears cycle may have begun, while headline arrears were essentially flat¹.

What happens next

The OBR expects the UK to remain in recession until late 2023, with CPI inflation peaking around its October level in the final quarter of 2022¹. Further Bank Rate rises were expected into mid-2023, though the Bank and some MPC members communicated that rates were not likely to peak as high as market predictions of over five per cent at the time of the November forecasts; the average forecast across those published by HM Treasury was for Bank Rate to end 2023 at four per cent¹. The review says the implications of the September mini-budget for consumers will only be evident in its data in the quarters ahead¹.