Chancellors in a pinch often fall back on ‘stealth taxes’, where headline rates of tax are left unchanged but thresholds are frozen – also called ‘fiscal drag’. At a time of high inflation this is a particularly powerful revenue-raising tool as wage increases move more taxpayers into higher brackets.

This Chancellor is no exception to the rule. While the headline rates of income tax will not rise (just about in keeping with the Conservatives’ manifesto commitment), the threshold for the additional (45%) rate of income tax will be reduced from £150,000 to £125,140, meaning individuals earning £150,000 or more will pay an extra £1,243 in tax. This measure is expected to raise nearly half a billion pounds in the 2023/24 tax year.

£125,140 is the threshold at which higher earners lose the (also frozen) personal allowance of £12,570. The effect of this is that those earning more than £125,140 face a marginal tax rate of 40% on income above £50,270, 60% between £100,000 and 45% above £125,140. One has to wonder whether the greater the number of taxpayers dragged into the highest rate of income tax, the louder the voices may become in the future for its abolition.

The dividend allowance (being the value of dividends which all taxpayers can receive annually tax free) will reduce from the current £2,000 to £500 over the next two tax years, bringing many more investors within the scope of taxation on their dividend income. The government expects this to raise £450m in 2024/25.

In this way the Chancellor looked to land the burden of higher taxes on higher earners, but the freezing of the thresholds will mean tax increases at all levels.

An increase in the rate of capital gains tax had been widely mooted in advance of today, but in the end there was no change and investors and entrepreneurs will no doubt breathe a sigh of relief. Instead, the capital gains tax annual exemption will reduce from £12,300 to just £3,000 over the next two tax years. This with the dividend allowance reduction comprise the measures announced by the Chancellor specifically to target unearned income.

In addition, a technical change to the capital gains tax rules looks to restrict the ability of non-UK domiciliaries to avoid UK tax by exchanging shares in a UK company for shares in a foreign one. Unlike many of the Chancellor’s announcements (which generally take effect at the start of the next tax year), this policy will be effective from today. Despite expectations that remittance basis taxpayers may come under fire in this Statement, this measure appears to be the only one targeting non-UK domiciliaries. Nevertheless, the non-dom regime will remain a political vulnerability for this government. It must continue to be tempting for the Conservatives to look to address that, perhaps by a review of the regime or even an increase in the remittance basis charge, in advance of the expected 2024 General Election.

The Chancellor will benefit from the effects of fiscal drag through the extended freeze on the income tax personal allowance amount, national insurance contribution thresholds, VAT registration threshold, and the nil rate band threshold for inheritance tax (first frozen by Alistair Darling in 2009/10 and set to remain at that same level now until April 2028, pushing more estates into 40% inheritance tax by virtue of nearly 20 years of inflation and, in particular, house price appreciation).

Perhaps unsurprisingly, the majority of the headline reforms set out under Kwasi Kwarteng’s ill-fated ‘Growth Plan’ (remember that?) have now been reversed. The headline rate of corporation tax will rise to 25% from April 2023, as scheduled during Rishi Sunak’s chancellorship (with a small profits tax coming into effect for those companies that have profits of less than £250,000); the increase in certain stamp duty land tax thresholds have been retained but will now be reversed from April 2025, recovering some £1bn per year; VAT shopping for visitors to the UK has been scrapped (again); and of course the proposed abolishment of the additional rate of income tax, which invited a rebuke from the IMF, was shelved (having already been walked back by Kwarteng himself).

As with previous years, there is an express push towards making the UK the next ‘Silicon Valley’, with mention of continued review of research and development tax credits (albeit with some more immediate changes to those rules being announced today due to concerns that the generous SME R&D relief is a target for fraudulent claims. The increase in the research and development expenditure credit (‘RDEC’) from 13% to 20% is perhaps an indication that we will ultimately be moving to a single RDEC system. Outside of R&D, the extension to the Seed Enterprise Investment Scheme and Company Share Option Plan investor reliefs announced in September will still go ahead. There is also an implication that the Enterprise Investment Scheme and Venture Capital Trusts may also be extended in the future.

Going hand in hand with the stealth taxes were stealth cuts. There were relatively few announcements about specific cuts but the Chancellor did say that, from 2025, departmental resource spending would grow at only 1% per year in real terms, thereby effectively reducing departmental budgets through inflation.

And of course it would not be a ‘fiscal event’ without the announcement of increased enforcement and a promise to reduce tax avoidance and evasion.

As is often the case, the potential policy changes trailed in the press went further than what the Chancellor actually announced today and the range of potential changes this time around seemed wider than usual. There is no doubt that the tax increases which were set out are significant revenue raisers for the government. They will be borne predominantly by higher earners through the reduction in allowances and the lowering of the additional rate income tax threshold. The Chancellor was at pains to place OBR forecasts front and centre and declare that the government and Bank of England will be walking in lockstep from now on, a significant departure from the insular approach of his short-lived predecessor.

The Conservatives will hope that this Statement will be enough for Liz Truss’s brief and disruptive tenure to be put behind them. However, this was a budget that could equally have been delivered by Rachel Reeves. In the 18 months before the next election, Jeremy Hunt will no doubt be hoping he will be able to bring forward polices that create some clear blue water between the Conservatives and Labour.