Chancellor Jeremy Hunt delivered his Autumn Statement on Wednesday 22 November 2023. The Chancellor’s statement sets out the government’s tax and spending plans for the next year, which will affect funding for key public services as well as the take-home pay and household budgets of millions of people. The Chancellor mentioned that the government has taken tough decisions to put the economy back on track to long-term growth and halve inflation but “the work is not done” yet. The chancellor articulates his priorities are to avoid high tax and big government spending, and instead cut taxes and “reward hard work” with 110 “growth measures” for businesses. The main focus of the statement was to “go for growth”, by productively utilising increased tax receipts from better-than- expected economic performance.
Some of the top takeaways from the statement include an increase in the National Living Wage, cuts to National Insurance for both the employed and self-employed, full expensing capital allowance, business rates support, and R&D tax credit reforms for small businesses. The currency market reacted to the Autumn Statement 2023 on a positive note with pound appreciating almost 0.82% (GBPUSD: 1.256 vs 1.246) against US dollar in the last 24 hours after the announcement.
Here are Key highlights of Autumn Statement 2023:
Personal Tax
• The National Living Wage to increase from £10.42 to £11.44 an hour from April.
• New rate will also apply to 21 and 22-year-old workers for the first time, compared to just those 23 and over previously.
• Main rate of National Insurance cut from 12% to 10% from 6 January, affecting 27 million people.
• Class 4 National Insurance for self-employed – paid on profits between £12,570 and £50,270 – cut from 9% to 8% from April.
• Class 2 National Insurance – paid by self-employed people earning more than £12,570 – abolished from April.
Business Tax and Incentives
• Hunt announcing full expensing tax break – allowing companies to deduct spending on new machinery and equipment from profits – made permanent.
• As per the statement, there will be a business rates discount for hospitality, retail and leisure worth £4.3bn. The 75% business rates discount for retail, hospitality and leisure firms in England extended for another year.
• Funding of £4.5bn to attract investment to strategic manufacturing sectors, including green energy, aerospace, life sciences and zero-emission vehicles.
• Those households living close to new pylons and transmission infrastructure will be eligible to get up to £1,000 a year off energy bills for a decade.
• Financial incentives for investment zones and tax reliefs for freeports extended from five years to 10 years, with new investment zones announced for the West Midlands, East Midlands, and Greater Manchester, as well as Wrexham and Flintshire.
• About £500 million will be allocated over the next two years to fund artificial intelligence innovation centres.
• The chancellor adds that the total package of measures will help increase business investment by about 1% of GDP.
Pensions and Benefits
• The state pension will be increased by 8.5%.
• People claiming benefits will face mandatory work experience if they do not find a job within 18 months. Hunt says he is making the biggest set of welfare reforms in a decade and will get a further 200,000 people into work.
• Claimants in England and Wales will be deemed able to work who refuse to seek employment to lose access to their benefits and extras like free prescriptions.
• Benefits will be increased by 6.7%, and there will be tougher requirements for those who claim them to look for work.
• The government will raise the local housing allowance, which has been frozen since 2020, in a measure worth £800 for some households next year.
• Funding of £1.3bn over the next five years to help people with health conditions find jobs. A further £1.3bn to help people who have been unemployed for over a year.
• Further consultation on whether employees get the right to pick the pension pot their employer pays into – possibly allowing them to have one pension pot for life.
Inflation and cost of living
• As per the statement, living standards are not expected to return to pre-pandemic levels until 2027-28.
• Chancellor says inflation is expected to fall to 2.8% by the end of 2024, according to the spending watchdog, down from 11.1% last year when Hunt and Rishi Sunak took office.
• According to the spending watchdog, inflation to stay “higher for longer” and that it will not drop to the Bank of England’s target of 2% until mid-2025. This is a year later than it expected in March.
Economy and growth
• Independent Office for Budget Responsibility (OBR) expects the economy to grow by 0.6% this year and 0.7% next year, rising to 1.4% in 2025; then 1.9% in 2026; 2% in 2027 and 1.7% in 2028.
• In March, the OBR had forecast the economy would shrink by 0.2% in 2023, before growing by 1.8% in 2024, 2.5 % in 2025, 2.1% in 2026 and 1.9% in 2027.
• The government will invest an extra £4.5bn between 2025 and 2030 in manufacturing.
• The chancellor says he will explore options for the sale of some of the government’s stake in NatWest. This will be done through a “retail share offer”.
• Underlying debt forecast to be 91.6% of GDP next year; 92.7% in 2024-25; 93.2% in 2026-27; before declining to 92.8% in 2028-29
Public spending
• The Chancellor reaffirms previous commitments made last autumn to provide £14.1bn for the NHS and adult social care in England, as well as an extra £2bn for schools, in both 2023 24 and 2024-25.
• Further, governments in Scotland, Wales and Northern Ireland get equivalent funding.
• Hunt says that the overseas aid spending will be kept at 0.5% of national income, below the official 0.7% target.
• To comply with NATO commitments, defence spending to remain at 2% of national income.
• The OBR says the measures will result in a £19bn reduction in spending on public services, after accounting for inflation.
Other key highlights
• The Chancellor approved a funding of £5m for Imperial College and Imperial College Healthcare NHS Trust to set up Fleming Centre to work on health innovations.
• On tobacco products, duty rate to increase by 2% above RPI inflation; hand-rolling tobacco rises 12% above RPI.
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