Chancellor Jeremy Hunt has just presented his second Autumn Statement, introducing 110 new measures which align to three priorities, namely reducing debt, cutting tax and rewarding hard work, and backing British business. Thus, this article will set out the most important points found in the Autumn statement.

The current economic situation in the UK

The Prime Minister in January had set out three economic priorities, namely, to halve inflation, grow the economy and reduce debt. There have been positive changes in these regards:

Inflation

Inflation has continued to steadily fall since the Spring Budget (SB2023), and especially since its peak in Autumn 2022 of 11%. The Consumer Price Index (CPI) currently sits at around 4.6% as of October 2023, mostly driven through reduced wholesale energy prices. Current forecasts from the Office of Budget Responsibility (OBR) show that the CPI is expected to fall further to sit below 3% by Q4 2024, and should hit the 2% target by 2025. Naturally, while inflation is still high, living standards will continue to fall in the UK, however, the rate of decrease is slowing down, and should recover by 2024.

Growth

Growth has been surprisingly steady, as opposed to the forecasts in the Spring Budget which were expecting a contraction. Output grew by 0.5% in the first three quarters of 2023 and average real income has grown by 2.7%. There appears to have been incredibly positive growth, going against the estimates of the OBR from 2022.

Debt and Borrowing

Government borrowing has been forecast as being lower than the SB2023, with debt as a proportion of GDP decreasing every year up until 2028-29 (final year in the forecast), at which point it will sit at 92.8%. The OBR has explained that while debt interest costs will be higher than expected, borrowing will be lower in 2024/25, sitting at £116.2 billion this year.

Thus, there seem to have been mostly positive changes in the UK’s fiscal situation, with inflation and debt decreasing while seeing a boost in growth. Nevertheless, inflation is still high, with the cost-of-living crisis still affecting many, while debt interest costs keep increasing, having been £22.2 billion higher than expected.

Changes in relation to taxes

Now that inflation is decreasing, and the UK is slowly regaining a sense of economic stability, the Chancellor has laid out a number of tax cuts.

Personal taxes

In regard to personal taxes, there is one major tax cut that will take effect from the 6th January 2024, which will cut the main rate of Class 1 employee National Insurance Contributions (NICs). These will be cut from 12% to 10%, leaving the overall basic income rate at 30%, accounting for 20% basic rate tax and 10% NI. According to the Chancellor, this will affect 27 million people, giving the average worker a tax cut of over £450 in 2024/25. Hunt, additionally, wants to revamp the tax situations of the self-employed. This will include abolishing class 2 NIC contributions, cutting taxes for around 2 million people, while also cutting Class 4 contributions by a percentage point.

Business Taxes

In the SB2023, Hunt introduced a full expensing policy for three years for businesses, allowing them to offset investment in plant and machinery against tax. In the Autumn Statement this has now been made permanent. This essentially rewards company with up to 25p off their tax bill for every £1 they invest, meaning a tax cut of £10 billion per annum. This should allow for a boost in overall business investment of £3 billion a year, increasing GDP by 0.2% in the long run.

Further to this, measures will be further introduced to prop up the hospitality, retail and leisure sectors who are still recovering from the throes of the pandemic and cost-of-living crisis. The current government support will continue to be offered, including freezing tax rates, and extending the 75% business rates relief for those sectors for the next year, while also freezing alcohol duty until August of next year.

Changes in relation to the economy

In terms of the economy, the chancellor plans to bring in a number of different measures in order to aid in this respect. These, for instance, include the following:

  • An extra investment of £4.5 billion into the manufacturing industry in 2025-2030.
  • Plans to look at selling a portion of the government’s stake in NatWest.
  • A creation of a new ‘investment zone’ Wrexham in Wales, as well as in Greater Manchester, and the west and east Midlands. These investment zones, as well as previously introduced ones, will be provided with 10 years of ‘financial incentives’ as opposed to 5 as previously planned.

Changes in relation to wages, benefits, pensions

Wages

The main change that has happened here is an increase in the national living wage. Over 23-year-olds will see an increase of 9.4% to £11.44 per hour, 21-23-year-olds will see an increase of 12.4%, and 18–20-year-olds will see an increase to £8.60 an hour.

Benefits

One of Hunt’s key wishes is to bring people back to work, with the UK’s inactivity rate (those of working age neither in work, nor looking for available work) being higher than a number of G7 countries including Germany, Japan, and Canada. Thus, the most striking of the reforms in the Autumn Budget is the Chancellor’s Back to Work Plan. Fundamentally, it will mean that those currently seen as inactive will have 18 months to find a job, during which they will be provided with work coaching and support. If they are unable to find a job after 18 months, they will be required to undergo a ‘mandatory work placement’, or face their Universal Credit being cut.

As well as this, the Autumn Budget provides for a number of funding packages in regard to benefits and unemployment, for instance, looking to expand free childcare and to support the long-term sick and disabled into work.

Pensions

There isn’t a whole lot that has changed in this regard. State Pension payments will rise by 8.5% to £221.20 a week. Further to this, in regard to private pensions, the government will strive to establish a ‘pension pot for life’, allowing employees to nominate a specific pot for their employer to pay into.

Other measures

There are also a number of miscellaneous policy introductions. These include the following:

  • £7 million pounds will be provided to fight against antisemitism in schools and universities
  • The planning applications system for businesses will be reformed in order to allow for quicker timeframes.
  • Finally, the government will ensure that the NATO commitment is fulfilled, namely that 2% of GDP is to be spent on defence.

Remarks

To conclude, this appears a much-appreciated return to boring government, after a couple years of political turbulence, most notably Liz Truss’ and Kwasi Kwarteng’s’ mini-budget in September of last year. The economy seems to be actively recovering after the pandemic, and is starting to find its feet in the cost-of-living crisis, with many of Hunt’s measures reflecting this. An increase in state pension payments and the national living wage are welcome measures for example, as well as the cut in NICs. The most controversial measure is the Chancellor’s proposed ‘Back-to-Work Plan’, which appears somewhat draconian in its mention of a requirement to partake in a mandatory work placement. Otherwise, Jeremy Hunt’s Autumn Statement presents a positive outlook and gives hope for future growth and inflation reduction.

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