Analysing the Autumn Statement: Looking beyond the inheritance tax cut

Chancellor Jeremy Hunt delivered his second Autumn Statement in a predictably buoyant mood.

Last week’s timely fall in the rate of inflation, paved the way for some form of tax cut, which Hunt duly delivered with a bigger than expected reduction in national insurance. The cut has dominated front pages in the 48 hours since, providing room for optimism for Rishi Sunak’s premiership ahead of next year’s election, which may come as soon as May.

Hunt was clear in his intention to help working people specifically, eschewing an income and/or inheritance tax cut in favour of the national insurance reduction.

However, the reality remains challenging for consumers and businesses. Economic growth will remain sluggish and many will still end up paying more tax as their wages increase with inflation. Getting business back on side remains a work in progress – with the majority still reeling with the Government’s previous measures to shore up public finances, namely the hike in corporation to tax to 25%.

Here is PN’s summary and analysis of the day’s key announcements.

Say: “Three of the Prime Minister’s pledges were to halve inflation, grow the economy and reduce debt. We are delivering on all three.”

Do: Whilst the UK is set to avoid recession in 2023, subsequent growth forecasts were downgraded.

• The OBR is expecting the UK economy will expand 0.7% next year and 1.4% in 2025. In the March budget, these forecasts stood at 1.8% and 2.5%.
• The CPI measure of inflation was 4.6% in the year to October- down from 11.6% when Rishi Sunak took office. This is largely the result of a fall in energy prices as opposed to food.
• The OBR said inflation will fall to 2.8% by the end of 2024, and hit the 2% target in 2025, one year later than planned, also much higher than the 0.9% average annual rate for 2024 that was projected in March.

Say: “Largest business tax cut in modern British history”

Do: Hunt announced welcome short-term relief but inheritance tax cuts were absent and businesses are still contending from March’s bruising corporation tax hike.

• Hunt announced the “Full Expense” scheme would be made permanent. The scheme means companies could offset the full cost of purchasing machinery and equipment instead of spreading it across multiple years.
• The Government has said that the £11bn measure would reduce companies’ tax by 25p for every £1 and the OBR predicted business spending would increase by £3bn a year as a result of the tax breaks.
• From January, National Insurance rates will be cut from 12% to 10% on employees earning between £12,570 to £50,270. An employee on the average salary of £35,000 may therefore save over £450.
• From April, the self-employed NICs top rate will be cut from 9% to 8%, affecting 2 million people. A self-employed individual earning £28,200 a year will save £350 in 2024/25

Say: “The best way to improve living standards in the long-term is to get more people into higher paid jobs.”

Do: The government was pointed in its stance on how it wants to alleviate cost-of-living pressures, but pledged renewed support for the most vulnerable.

• Taken together, support to households to help with cost of living pressures is worth £104 billion over 2022-23 to 2024-25, or £3,700 per household on average.
• Universal Credit will increase from next April by 6.7% in line with September’s inflation figure, an average increase of £470 for 5.5m households.
• The state pension will rise by 8.5% in line with the normal measure of earnings to £221 a week from April 1. Ministers had been considering using a lower measure of inflation that stripped out the effect of bonuses.

Say: “Pension fund reforms that support our most promising growth sectors and improve outcomes for savers.”

Do: A shake-up of the pensions system is set to give workers greater control over where they build their nest egg.

• Employees will have a legal right to require a new employer to pay pension contributions into their existing pension pot, so they can have just one pot for life. These measures will provide £75 billion for financing for high growth companies by 2030, the chancellor said.
• Hunt also pressed on with previously initiatives by announcing a £250m investment package for investment funds into life sciences and tech companies.
• By 2030, the majority of workplace DC savers will have their pension pots managed in schemes of over £30 billion, a significant shift in the market

Say: “If we are to incentivise work, we must also tackle low pay”

Do: Hunt announced the largest ever cash increase in the Living Wage.

• The National Living Wage will rise by 9.8% to £11.44 an hour
• The Mortgage Guarantee Scheme will be extended for an additional 18 months until June 2025. The scheme offers lenders the financial guarantees they need to cover the other 95% of the mortgage, however, mortgage brokers said the impact of this scheme on the sector had been minimal, and would likely change little about the state of the market.

Say: “Targeted investments will ensure the UK remains competitive in sectors where we are already leaders and innovative in areas where we are not.”

Do: New initiatives to expand R&D funding and simplify the R&D tax credit system were broadly welcomed by UK businesses, including those in the tech sector who said it would help to accelerate innovation.

• The government pledged £4.5bn of support for manufacturers, with £2bn earmarked for the automotive industry, £975m for aerospace and £520m for life sciences.
• Hunt also said the Government would improve R&D tax reliefs by merging the current R&D Expenditure Credit and SME schemes. The hope is that this change will simplify the system and provide more support for UK companies to drive innovation.
• The Government is extending the British Business Bank’s Future Fund. This will provide at least £50 million additional investment in the UK’s most promising R&D intensive companies.

Say: “Investors say the biggest thing we can do is to announce a longer-term strategy for their industries”

Do: Some expected Hunt to take a similar approach to the EU and the US and introduce funding for the UK’s clean tech sectors. However, there were relatively few measures announced and experts noted that significantly more funding will be needed to help the UK reach its net-zero targets.

• Hunt announced £960 million would be made available for green industries – focused on offshore wind, nuclear, carbon capture and hydrogen from 2025.
• Hunt also pledged £6bn of new funding between 2025 and 2028 to improve energy efficiency in households, businesses, and the public sector. He also announced the formation of a new energy efficiency taskforce to help deliver “energy efficiency across the economy”.

Say: “The government is delivering on levelling up and announcing further measures

to support growth and investment across the UK”

Do: The Conservatives have long made levelling up one of their flagship policies, however Hunt allocated relatively little new funding to these initiatives.     

• The government is announcing new Investment Zones, including confirming the next set of zones in Greater Manchester, the West Midlands, and the East Midlands. They will also double the flexible funding envelope for each investment zone to £160 million by extending the programme from 5 to 10 years.
• The government also announced £37.5 million to support regeneration in places across the UK, including the Isles of Scilly, Warrington, and Monmouthshire.

Our verdict

The Statement – and the prominence of ‘cuts for working people’ – was made with an unsubtle eye on next year’s general election, and Hunt and Sunak will hope to have strengthened core support in the Red Wall and Home Counties. Whilst progress is being made in repairing the damage of their predecessors, they will be under no illusions that the electorate will need more convincing to prevent their party being ousted from Downing St