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The Autumn Statement: What Happened and What It Means

24 Nov 2023

The Autumn Statement

The Autumn Statement is an opportunity for the Government to implement fiscal policy changes to reflect their objectives, and respond to economic conditions. This year, inflation-driven wage growth has caused fiscal drag by pushing millions of workers into higher tax brackets, which left the Treasury with £25 billion of extra revenue. As such, cuts to tax rates appealing to the traditional Conservative base were always on the cards for this year’s autumn statement.  

Much talk in the preceding weeks surrounded inheritance tax. Following backlash to leaks suggesting that the Autumn Statement would abolish inheritance tax entirely, which is only paid by the wealthiest 4% of citizens, the flagship policy announced by Chancellor Jeremy Hunt was a reduction in national insurance contributions, as well as a range of supply side policies. 

This report will break down all of the important announcements, analysing what they mean both for businesses and for the next general election.

What was announced?

Policy Announcements:

- Employee national insurance will be cut from 12% to 10%, and will be expedited to come into effect by the 6th of January. - Full expensing of certain types of investment against tax will be made permanent, providing an immediate tax reduction of 25% of the value of investments made.

- £4.5 billion of new investment to boost key manufacturing industries such as electric cars. - The National Living Wage will rise by almost 10%, reaching £11.44 for over-21 year-olds.

- Alcohol duty will be frozen until August 2024. - Benefits will rise by 6.7%, in line with September’s inflation figures, not the lower October figure as was rumoured.

- Jobseekers Allowance will be reformed such that after 18 months of receiving the benefit, claimants must take mandatory work experience.

- The planning application process will be reformed, meaning a full refund of application fees if local authorities take too long to process proposed developments, and additional funds to tackle the planning backlog.

- The national grid connection process will be reformed, supporting the adoption of electric vehicles and other innovative industries.

- The 75% reduction in business rates will be extended by one year for small retail and hospitality firms. - Business Rates will increase by September’s inflation figure of 6.7% for businesses who do not qualify for a reduction.

- Foreign Direct Investment will receive structural and financial support by improving the Office for Investment’s offer to important foreign investment partners. 

Office for Budget Responsibility (OBR) Latest Figures Announcements:

  • Short-term growth forecasts have been revised up, but medium-term forecasts are lower than in the Spring Budget.

  • Debt-to-GDP ratio forecasts have improved, likely to peak at 97%.

  • Inflation forecasts have been downgraded, with inflation expected to average 2.8% over 2024, compared with Spring’s 0.9% estimate.

  • The unemployment forecast has risen from Spring, expected to peak at 4.6% of the workforce in the second quarter of 2025.

  • House prices are predicted to fall by 4.7% in 2024.

  • Autumn statement announcements could bring 78,000 new workers into the workforce.

What does this mean for businesses?

Long rumoured tax cuts came to fruition in the form of an employee national insurance rate reduction. Though this will not have a direct impact on the tax burden of businesses, it will provide employees with a substantial increase in their take home pay from January 6th. As such, businesses will likely feel a slight ease in the upwards pressure on the cost of employment. Not only will businesses be aided in ensuring workers’ compensation keeps up with a cost of living crisis, they may also see a greater number of potential workers, as individuals eligible to work face greater incentives to do so.

A more direct effect will be felt by many businesses from the announcement that full expensing will become a permanent policy rather than a temporary measure. Full expensing was announced at the previous Spring budget, and entitled businesses to immediately deduct the costs of certain kinds of investment, such as machinery and technology from their tax burden. The policy is predicted to amount to an effective £10 billion tax cut, and OBR forecasts suggest it could increase investment by £14 billion. When the initially temporary scheme was announced, the OBR forecasted up to 3% a year additional business investment during its initial three-year period. 

Businesses in some key manufacturing sectors can expect direct financial support as a result of this Autumn Statement. The Chancellor earmarked £2 billion for the car industry, £975 million for aerospace and £960 million for clean energy. Though these subsidies will not be available until 2025, making them contingent on a Conservative win at the next election, they represent substantial competition to manufacturing packages offered by Labour.

Whilst small businesses with properties of rateable value less than £51,000 will be relieved at an extension to temporary reductions, the vast majority of businesses paying rates will face significant rises, as the cost will rise in line with September’s inflation figures. 

Chancellor Jeremy Hunt was keen to emphasise his priority of getting more people into work. He claimed that his reforms to welfare services could get an additional 200,000 people into employment. With the UK plagued by a Labour shortage, hampering growth and productivity opportunities for businesses, such an objective may provide businesses relief. However, with very little policy addressing the skills gap between the UK’s labour supply and its demand, this policy is likely to have almost no impact on businesses in need of additional skilled labour.

Businesses for whom such a policy may help, however, may have to contend with a 9.8% rise in the National Living Wage. Whilst decreases to the National Insurance rate translate this rise to a 30% increase in take home pay for those earning the National Living Wage, businesses must still plan for the increased Labour costs that will fall on them.

Elsewhere, OBR figures paint a slightly bleaker picture across the board than was announced in the Spring. With growth forecasts downgraded as interest rates continue to bite, businesses may adjust their own expectations for demand in the foreseeable future. Moreover, downgraded inflation forecasts combined with high interest rates will eat into costs, competing with the Conservatives’ investment incentives.

What does this mean for the next General Election?

The Autumn Statement is one of the few moments left for the government to try to change the Conservative Party’s trajectory going into the election next year, and lay political traps for Labour.

Chancellor Jeremy Hunt has attempted to win over voters, with support for the Tories at a historic low. 21% of UK voters say they would vote Conservative, 23 points less than the 44% saying they would vote Labour, according to pollster YouGov.

A cut in national insurance tax, a 2% point cut that comes into effect from January, will be worth £450 for the average worker. This will help the Conservatives enhance their branding as the low-tax party ahead of the elections, amid increased calls from Conservative MPs to cut taxes. Despite this, the Office for Budget Responsibility has forecast revised growth projections for the next year, so voters are still unlikely to feel better off in the coming year. With tax thresholds remaining frozen rather than increasing with inflation, voters will also realise that the benefit of the cut in national insurance is marginal at best. In fact, even with the announcements in the Autumn Statement implemented, tax as a percentage of GDP is expected to reach 37% next year, the highest ever post-war level.With the polls looking so bleak for the Conservatives, this tax break is unlikely to be enough to win over a fresh crop of voters, and looks to be an act of damage limitation.  

Polis spoke to a former Conservative cabinet minister who described the impact of the tax cuts as ‘marginal at best’ and stated that with mortgage rates continuing to rise, many people would not feel better off even after some tax relief. Despite scope for further tax cuts at the Spring budget, the former cabinet minister Polis spoke to expressed serious doubts as to whether these measures would in any way be conducive to a Spring election.

In response to the statement, Labour and Shadow Chancellor Rachel Reeves hasn’t focused on any of the individual economic policy announcements by Jeremy Hunt. Instead, she has made a series of political arguments pushing back on his optimistic tone, claiming to be vindicated by Office for Budget Responsibility forecasts. However, the fall in inflation provides a strong argument for the Conservatives to tell voters that the situation is improving thanks to their stewardship. This kind of rival economic analysis from the two parties is likely to ramp up in the run-up to the next general election.

Labour's core argument is that the county’s finances have been run into the ground and that the Conservatives can't be trusted to turn it around. While this strategy risks sounding too negative, voters facing economic difficulties may resonate with this message, making the Tories look out of touch.  

A key election point is that the government has kept a May election on the table, by using emergency legislation so that the national insurance cut will be from January rather than April. This will allow them the opportunity to call an election earlier, should they feel a positive change in public opinion.  

Another indicator of a possible May election is that a nominal £21bn a year tax cut has been funded from a real £19bn a year cut in public services. This isn't sustainable and suggests Hunt doesn’t expect his party to win the next election. Whoever wins the election will almost certainly have to raise those taxes again; this could provide a conundrum for Labour, who have committed to keeping income and capital gains tax at the same rate.

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