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The UK chancellor, Jeremy Hunt, as announced a raft of changes to the tax and benefit system as part of the government’s autumn statement. They included:
- main employee rate of national insurance cut from 12% to 10% from January 6 2024, saving someone on the average salary £450
- class 2 national insurance to be abolished, saving the average self-employed person £192 a year
- national living wage to increase from £10.42 to £11.44 and extended to all over-21s from April 2024
- universal credit to rise with October inflation of 6.7%, an average increase of £470, accompanied by more requirements for claimants to look for work
- pension triple lock maintained with an increase of 8.5% from April 2024
- an effective business investment tax cut of 25p for every £1 invested
- alcohol duty frozen until August 1 2024.
Here’s a selection of expert reactions taken from our live blog of the autumn statement on November 22.
Personal taxes could give an electoral boost, but what next?
Gavin Midgley, Senior Teaching Fellow in Accounting, University of Surrey
This is a significant giveaway but possibly also a canny one politically, given that this rate only affects earnings up to £50,000 per annum – anything beyond that will still incur the existing rate. This could mean an avoidance of the “tax cuts for the rich” accusations that were levelled at the previous chancellor in the September 2022 mini-budget.
The Office for Budget Responsibility (OBR) has declared that the NIC cut accounts for virtually all of the fiscal windfall. And with downgraded growth forecasts for the coming two years, it’s difficult to see what the chancellor can do in the next full budget (very likely to be the last budget before the next general election).
Business taxes: expected but questions remain
Hilary Ingham, Senior Lecturer in the Department of Economics at Lancaster University
Out of over 100 measures outlined in today’s autumn statement, a significant number were directed at business. Making full expensing permanent – the largest business tax cut in modern history, according to Hunt – certainly carries a significant cost, some £11 billion per year.
While it won’t help all companies, this measure is one of the headlines from the autumn statement because the chancellor can now claim that, not only does the UK have the lowest headline corporation tax rate in the UK, it also has the most generous capital allowances.
The chancellor also extended the 75% discount on business rates, up to £110,000, for retail, hospitality and leisure business for another year. Whether this will be sufficient to save many hospitality businesses remains to be seen.
Despite government headroom, the economy is faltering
Alan Shipman, Senior Lecturer in Economics, The Open University
Inflation has halved since October 2022 and there has been talk of “fiscal headroom” because the government borrowed less than it expected in 2023. But the gap between its spending and tax receipts has continued to widen. Public borrowing was 23% higher than last year in the first half of 2023, and October’s deficit was the second highest on record.
A sustained investment recovery since 2022 is now faltering, with year-on-year growth in business investment slowing to 2.8% in the third quarter, from 9.2% the quarter before. Without more investment, it’s hard to deliver any growth in average output per hour worked. This key measure of labour productivity stopped growing in 2016 and fell sharply in 2020-21 during the pandemic shutdowns.
Pension pot for life
Louise Overton, Associate Professor in Social Policy at the University of Birmingham
The state pension will surpass £10,000 for the first time this year thanks to the continuation of triple lock. This is a significant step forward for older people living on a low income and a lifeline for the 15% of pensioners living in poverty in the UK.
But it’s hard to see how tax cuts and the continuation of the triple lock (at least in its current form) can be squared with a situation where significant sections of the working population remain worse off. Intragenerational inequality among older cohorts is real, but these measures can only serve to worsen the intergenerational savings gap. Any hope of closing this gap via private pension savings is unlikely to be realised by Jeremy Hunt’s plans to consult on “pot for life” pension reforms.
If one of the unintended consequences is that pension funds would probably compete for top earners with more retirement savings, this move would represent another step towards the financial exclusion of small pension pot holders (typically women). They already face barriers to accessing financial advice and making the most of their defined contribution savings – an all too familiar story for the women in Chasm’s recent study on pension decision making.
Business funding may not be transformative
Phil Tomlinson, Professor of Industrial Strategy, University of Bath
UK investment has only grown by 4.6% since the Brexit referendum, compared to 32% in the US and 15% in the Eurozone. Low investment is a key contributor to weak productivity growth and has been a drag on the UK economy for years. The autumn statement sought to address this record. Similarly, last week, the government announced £4.5 billion over five years in funding for UK manufacturing to accelerate the shift to net-zero, along with an expansion of digital support for small and medium size businesses through the Made Smarter Adoption programme.
Whether this funding will be sufficiently transformative to propel the UK to the head of the global clean-tech race is debatable. It is “small beer” compared to recent interventions in the US and EU, while Labour has proposed to invest £28 billion in green technologies in the next parliament.
The eye-catcher for business in today’s statement was the announcement that “full capital expensing” will be made permanent. This is a tax break that allows companies to deduct investment expenditure on profits and reduce their corporation tax bill. This should give a boost to UK corporate investment – the Office for Budget Responsibility thinks by as much as £3 billion each year. However, it is unlikely to be of much value to smaller firms and start-ups, which don’t tend to invest significantly in new capital equipment (due to lack of funds) and/or record large profits – especially in their early years.
The Chancellor hopes his new fiscal incentives will boost investment by around 1% of GDP. However, this may be wishful thinking when the “animal spirits” of business are dampened due to high interest rates and the generally bleak economic outlook.
Read more: The UK needs a new industrial strategy or it will lose the global green subsidy race
Little investment in public services
Shampa Roy-Mukherjee, Vice Dean and Associate Professor, Royal Docks School of Business & Law, University of East London
UK government debt currently stands at £2.6 trillion which is approximately 98% of GDP and the sixth highest amongst European countries. In the last financial year, the government spent £111 billion on debt interest – more than it spent on education, according to the BBC. But the government has still been able to announce tax cuts conducive to economic growth in the Autumn statement.
This is because of additional tax receipts arising from an inflationary environment, as well as the additional forecasted revenue from freezing tax thresholds till 2028. Despite improved fiscal headroom, there is little evidence [from the statement] that there will be any substantive expenditure in public services, apart from the NHS. In fact, the forecast is for a 16% reduction in spending in real terms in other departments until 2028.
With the inflation battle now under control, had the burden of interest payments been at much lower levels, it might have freed up more desperately needed resources to invest in growth-oriented plans and improve public services.
Louise Overton has received funding from the abdrn Financial Fairness Trust for research into defined contribution decision-making and CHASM has received funding from Barrow Cadbury Trust and Friends Provident Foundation for their financial inclusion monitor.
Phil Tomlinson receives funding from the Engineering and Physical Sciences Research Council (EPSRC) for Made Smarter Innovation: Centre for People-Led Digitalisation.
Alan Shipman, Gavin Midgley, Hilary Ingham, and Shampa Roy-Mukherjee do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.
