The Chancellor Jeremy Hunt outlined the government’s plans for tax and spending in his Autumn Statement today.
Commenting on the measures announced by the Chancellor, Subrah Krishnan Harihara, Deputy Director of Research and Information Systems at Greater Manchester Chamber, said: "Against a backdrop of stubborn inflation, high interest rates and a stagnant economy, it was unsurprising that the Chancellor Jeremy Hunt attempted to signal fiscal prudence while also taking measures to stimulate growth and simultaneously addressing the important political consideration of a general election in about 12 months.
"Despite the Spring Budget in March, which Mr Hunt had badged "A Budget for Growth", economic growth has faltered. In Q3 2023, UK GDP flatlined (0% growth) following a mere 0.2% growth in Q2 2023. And, contrary to previous expectations, inflation had proven to be persistent. While the Prime Minister's ambition to halve inflation has indeed materialised, businesses and households are facing the brunt of higher interest rates and lower disposable incomes - evidenced by the fact that retail sales for the three months to October 2023 were 1.8% lower compared with the previous three months. The tax burden on households and businesses have also become higher because of the freeze in income tax thresholds and higher rates of corporation tax. This potent mix of poor indicators set the scene for a gloomy outlook, which was confirmed today. GDP growth in 2023 is expected to be 0.6%, while in 2024 growth is forecast to be 0.7%. Forecasts from the IMF and OECD show that the UK is, with the exception of Germany, set to record lowest growth amongst the G7 countries. Consequently, growing the economy had to be at the centre of today's Autumn Statement and the Chancellor devoted a lot of his speech to this issue. In keeping with this theme, today's Statement was badged "Autumn Statement for Growth" and said to include 110 measures to help grow the economy.
"Supply side reforms are what any government has the most control over. Moreover, there had been calls from sections of the Conservative party for supply side reforms including reducing taxes. Understandably, the Chancellor's speech was founded on a series of measures to lower the tax bill. Or were they?
"The centre piece was that the 12% employee NI contribution has been reduced to 10%, effective 6 January 2024. But what should be borne in mind - and the Chancellor chose not to mention it - is that wages after NI deductions are subject to tax meaning the reduction in NI would at least be partially offset by a higher income tax bill. The burning issue at the moment, the result of the freeze in income tax thresholds, is the increase in the number of workers who will pay the higher rate of income tax. Today's announcement on NI could well push even more workers into the higher tax bracket. Other NI related announcements included abolition of class 2 NI contributions and reduction of 1 percentage point for class 4 NI contributions for the self-employed. One issue that has plagued the UK for many years is low levels of business investment. As a measure to unlock business investment, the Chancellor had introduced full expensing in his Spring Budget. In his Autumn Statement today, Mr Hunt announced that full expensing would now become a permanent measure. Mr Hunt hopes there will be a business investment surge but the actual impact could be mixed especially when businesses have to wrestle with higher bills for wages, fuel and energy.
"Other key announcements covered pensions, funds for innovation, planning reform, extended tax relief in investment zones and incentives for attracting investment into manufacturing, a sector that is also set to receive an extra £50 million for apprenticeships. Greater Manchester is set to receive a new Advanced Manufacturing led investment zone. In addition to committing to the pension triple lock, a key Tory manifesto promise, the Chancellor announced that the increase in universal credit will be based on September's inflation rate of 6.7%. Both these measures come into effect next April and will not have any immediate impact. With the Prime Minister committed to emerging technologies such as Artificial Intelligence, the Chancellor also announced an extra £500 million over the next two years for AI related innovations.
"As has been the trend recently, the Autumn Statement did include previously made announcements such as the one on the Advanced British Standards, which aims to bring together A levels and T levels into a single qualification, and a strengthening of measures to minimise late payments.
"The Chancellor began his speech with a rallying cry for less government, which is ironic. In his term as Chancellor, the current Prime Minister presided over a significant expansion in public spending albeit to fight the Covid-19 pandemic. That was not small government, it was very much big government. In a similar vein, the Chancellor's announcements were in the nature of an early pre-election giveaway. The Chancellor has capitalised on the extra fiscal headroom he has. However, with the economy expected to flatline and the cost of living crisis still a live issue, it is questionable how much headroom he will have next spring for his real pre-election giveaways. With today's announcements, debt is expected to reach 94% of GDP. And if the Chancellor has to resort to increased borrowing to fund other pre-election giveaways, many of his party MPs may not be as willing as they were today to cheer him on."