In association with
Save content
Have you found this content useful? Use the button above to save it to your profile.
The pull of the fiscal black hole |autumn statement | accountingweb

The pull of the fiscal black hole


After yesterday’s Autumn Statement, Paul Aplin keeps finding his attention drawn towards the gaping public finance black hole.

18th Nov 2022
In association with
Save content
Have you found this content useful? Use the button above to save it to your profile.

Perhaps it is my age, perhaps it is a kind of OCD, but sometimes when I am reading, I find that I must keep flipping back to a single line or paragraph. Yesterday’s Autumn Statement had that effect on me and the thing I kept going back to was the debt interest figure.

A year ago, in the 2021 Autumn Statement (delivered by then Chancellor, now prime minister Rishi Sunak) net debt interest for 2022/23 was forecast at £33.7bn. The Red Book noted that: “While the higher level of borrowing is currently affordable as the interest rate the government pays on its debt remains close to historical lows, the public finances remain vulnerable to future shocks due to the government’s large stock of debt.” How prophetic that rider was.

By the time of the 2022 Spring Statement, the Office for Budget Responsibility (OBR) was predicting that figure would reach £83bn, “the highest nominal spending ever and the highest relative to GDP [Gross domestic product] in over two decades… nearly four times the amount spent on debt interest [in 2020-21] and [greater than] the budgets for day-to-day departmental spending on schools, the Home Office and the Ministry of Justice combined.” 

Yesterday’s Green Book increased the figure even further, to £120.4bn.

The rate of interest the government has to pay on the debt pile is such a strong factor now that no element of the 2022 Autumn Statement could really escape its effect. 

A matter of style

In his mini-Budget at the end of September, Kwasi Kwarteng reached for some big fiscal levers, omitted any OBR analysis and delivered – with bravura – a speech setting out measures focused on driving growth. The markets reacted dramatically. The cost of government borrowing rose. 

The Autumn Statement took a very different approach. OBR forecasts were included and Jeremy Hunt’s delivery was sober – one might say sombre – and business-like. The markets seemed largely untroubled. Most of the mini-Budget’s announcements had, of course, already been abandoned. In terms of tax announcements, much of what was announced on the day seemed rather flat. 

It’s a (fiscal) drag  

Much of the heavy lifting – beyond the reversals to the mini-Budget measures that had already been announced – was down to fiscal drag: the personal allowance, higher rate threshold, national insurance upper earnings limit and upper profits limit (as well as the primary threshold and lower profits limit) and the inheritance tax nil-rate band and residence nil-rate band will remain frozen for two more years, to April 2028. The national insurance secondary threshold will be fixed at £9,100 from April 2023 until April 2028 and the Class 2 lower profits threshold will be fixed from April 2023 until April 2028 to align with the lower profits limit.

The VAT threshold will remain frozen until April 2026. 

The income tax additional rate threshold will be lowered from £150,000 to £125,140 – the point at which the personal allowance withdrawal taper ceases – from 6 April 2023.

The reduction in the capital gains tax exempt amount, first to £6,000 and then to £3,000 and the reduction in the dividend allowance to £1,000 and then to £500 will raise further revenue, but at the administrative cost of requiring more people to complete tax returns.  

The contrast with the “big lever” headline-grabbing measures in the mini-Budget could hardly have been greater.

Over at HMRC

There was only one tax-related document on HMRC’s website: a policy paper (and some draft legislation) on share-for-share exchanges involving non-domiciled individuals. 

There were also changes to R&D reliefs, clearly aimed at curbing abuse of the system.  

One other announcement that caught my eye was the investment of a further £79m over the next five years to enable HMRC to allocate additional staff to tackle more cases of serious tax fraud and address tax compliance risks among wealthy taxpayers. This investment is forecast to bring in £725m of additional tax revenues over the next five years.

There was, however, nothing on Making Tax Digital (MTD). The numbers in the pilot are still well below the level we should be seeing with April 2024 now less than 18 months away. The restriction allowing only businesses with fiscal year ends to join needs to be removed as a matter of urgency. There are also several other mission-critical issues relating to quarterly returns, the impact of basis period reform and income from jointly let property to resolve.

Things to come

The Spring Budget is only four months away. 

Who knows what will happen between now and then?

I’m sure the Red Book will again provide plenty for my eye to keep wandering back to.

The black hole will retain its power.


Paul Aplin will be appearing at AccountingWEB Live Expo on 30 November and 1 December, alongside Rebecca Benneyworth, Ian Holloway, Glenn Collins and many other tax experts. You’ll be able to hear in person what the measures really mean for your clients.


Replies (5)

Please login or register to join the discussion.

By johnjenkins
21st Nov 2022 15:51

OK let's look at what's happened. Pound stood at $1.17. Liz and kwazi came along and it went down to $1.03. Now we're back at $1.18. You have to ask the question who really does run our country? It's not rocket science.

Thanks (0)
By Michael C Feltham
21st Nov 2022 19:16

Interesting comments and analysis.

Unfortunately, Britain's economic problems are now so serious, it is almost impossible for any politician to create a caucus of agreement for any viable, workable and affordable solution in the future.

The Budget Deficit is forecast to be circa £42.7 Billion by March 2023.

"LONDON (Reuters) - Britain's budget deficit looks set to rise to 8% of gross domestic product during the current financial year, the National Institute of Economic and Social Research (NIESR) forecast on Friday following finance minister Kwasi Kwarteng's mini-budget.

NIESR also predicted Britain's budget deficit would not fall below 100 billion pounds ($111 billion) in future years, even after temporary energy support measures expire, due to the tax cuts which Kwarteng announced.".

UK's borrowing from the global Sovereign Risk markets, relies upon their collective view of the UK economy: all risk agencies (S&P, Moodys, Fitch et al) have downgraded UK risk which means interest rates on UK government debt instruments will rise, significantly.

As with a majority of World nation states, the £ sterling is a "Fiat" currency: in other words there is no guaranteed value behind it such as bullion for the same value as money issued. The value of the pound relies ONLY on the strength (Or weakness!) of its economy, and the global credit market's view of the forward credit risk.

Britain's Current Account (i.e. Balance of Trade), definition "The current account represents a country's imports and exports of goods and services, payments made to foreign investors, and transfers such as foreign aid." is heavily in deficit and has been for a long time.

"The current account deficit in the UK shrank to GBP 33.8 billion or 5.5% of the GDP in the second quarter of 2022 from a downwardly revised record GBP 43.9 billion, or 7.2% of the GDP in the prior period and compared to market forecasts of GBP 43.8 billion. The total trade gap narrowed slightly to GBP 26.2 billion from GBP 32.2 billion in the prior period, as the goods deficit remained at record levels of GBP 62.3 billion from GBP 67.8 billion in the first quarter, in part due to the soaring cost of fuel imports. The services surplus increased to GBP 36.1 billion from GBP 35.6 billion and the total primary income shortfall fell significantly to GBP 1.9 billion from GBP 6.1 billion, amid the repatriation of strong overseas earnings in the oil and energy sector. The secondary income deficit was little changed at GBP 5.6 billion, amid ongoing payments to the EU under the withdrawal agreement"

Clearly, this also has to be funded - eventually!

True Monetary Inflation has not been helped by the overhang created by Quantitative Easing: which is bad enough. However, this is made worse by banks indulging in what is called Credit Money Creation.

All such impact on a fiat currency's global market view and risk assessment.

Next comes Government's unfunded forward debt obligations: such as civil service pensions, state pensions, health and a bundle of other obligations.

Now, if the foregoing metrics were not bad enough, as the very well respected accountancy firm Mazars forecast, the Bank of England raising base rates has impacted seriously upon SME's borrowing: and SMEs create circa 48% of UK's Private Sector GDP! Plus, surprisingly, around 47% of Private Sector employment.

"Businesses will see £2bn added to their borrowing costs overnight

Analysis of Bank of England data by Mazars shows businesses have had an additional £2bn added to the costs of their bank debts. Businesses are currently paying £14bn annually in interest payments on their £409bn in floating rate bank debt. With the new 0.5% interest rate rise, payments on debt will increase to £16bn almost overnight.

We believe that the 0.5% jump in base rate is going to come as an unpleasant shock for businesses. Rising borrowing costs are likely to push even more businesses to close. In the past 12 months, 19,191 UK businesses have entered into an insolvency process, a 70% increase on the previous year.

The rates rise will be putting more businesses under financial strain, especially so-called ‘zombie’ businesses that survived the pandemic through the use of extremely cheap debt. As their debt repayments become more unsustainable, an increasing number of businesses are likely to enter insolvency."


I am deeply negative about the UK economy's forward prospects.

Thanks (0)
Replying to Michael C Feltham:
By johnjenkins
22nd Nov 2022 08:43

Stagnation seems a word that sums it all up.

Thanks (0)
Replying to johnjenkins:
By Michael C Feltham
22nd Nov 2022 09:15

I would suggest accelerating backwards at ever increasing speeds, John!

Thanks (0)
Replying to Michael C Feltham:
By johnjenkins
22nd Nov 2022 10:52

Greed from the rich. Supermarkets say shortage of eggs due to avian flu. Absolute rubbish. Shortage due to supermarkets not paying farmers even cost price. They tried to get away with it with milk but come unstuck. Replicate that over everything else and you can see why prices have SHOT up (not just gone up a bit). There seems to be a 50% mark up on everything. This is nothing to do with Brexit, just greed.
Why didn't the Government say to energy companies "keep prices as they were (before £1800 rise) and if you don't have enough for investment at the end of the year we will help (for investment)" instead of all this "windfall tax" and "help the vulnerable with handouts".
Yes you're right Michael we are going backwards. Definitely time for a GE so the Tories can get their act together as Labour have nearly done.

Thanks (0)