When inflation is near its 2% target, indexation or is not a big issue. That changes the moment that inflation tops 10%. The chancellor opted to index pensions and benefits. But he decided to persist with the Rishi Sunak’s income tax threshold freeze – even in the face of much higher inflation – and extend it out for the full period of the forecast and added in another big revenue raiser by freezing the threshold for employers’ national insurance. Thresholds for capital gains tax, for dividends and the 45p rate threshold for income tax were all reduced. That allowed big tax rises without changing tax rates – it is less progressive than raising the same sums through higher rates, but less noticeable and in line with the letter if not the spirit of manifesto guarantees.
There is one area where the government claims it will index but in practice probably will not: fuel duty. Because indexation is government policy, the OBR dutifully scores that. Next year the duty should be ‘super-indexed’ – to restore the cut introduced to help with the cost of living. Hunt is much more likely to follow his predecessors and fail to meet the alleged policy commitment. But there is an even bigger decision looming. Before the statement there were hints that he might say something about how he will replace the revenue that will be lost from fuel duty when the switch to electric vehicles gathers pace. He ducked. He cannot do that much longer.
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Autumn Statement 2022: indexation and inflation
To index or not to index, that was the question.
When inflation is near its 2% target, indexation or is not a big issue. That changes the moment that inflation tops 10%. The chancellor opted to index pensions and benefits. But he decided to persist with the Rishi Sunak’s income tax threshold freeze – even in the face of much higher inflation – and extend it out for the full period of the forecast and added in another big revenue raiser by freezing the threshold for employers’ national insurance. Thresholds for capital gains tax, for dividends and the 45p rate threshold for income tax were all reduced. That allowed big tax rises without changing tax rates – it is less progressive than raising the same sums through higher rates, but less noticeable and in line with the letter if not the spirit of manifesto guarantees.
There is one area where the government claims it will index but in practice probably will not: fuel duty. Because indexation is government policy, the OBR dutifully scores that. Next year the duty should be ‘super-indexed’ – to restore the cut introduced to help with the cost of living. Hunt is much more likely to follow his predecessors and fail to meet the alleged policy commitment. But there is an even bigger decision looming. Before the statement there were hints that he might say something about how he will replace the revenue that will be lost from fuel duty when the switch to electric vehicles gathers pace. He ducked. He cannot do that much longer.
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