In the midst of a cost-of-living crisis and with a watchful eye on the upcoming election, Chancellor Jeremy Hunt recently unveiled the 2023 Autumn Statement.
Stepping up for his second Autumn Statement, Hunt’s focus on tax cuts signalled a departure from last year’s ‘storm’ of tax freezes and increases, thanks to a fiscal windfall of approximately £27 billion.
OBR insights
The Office for Budget Responsibility (OBR) played a pivotal role in contextualising the Autumn Statement within the broader economic landscape.
Despite a more resilient economy than initially predicted, the OBR downgraded its growth forecasts for 2024 and 2025. The unexpected persistence of inflation and higher interest rates created a complex economic outlook.
As inflation eased to 4.6%, aligning with the Prime Minister’s commitment to halve inflation rates, the OBR highlighted the delicate balance between positive output from various sectors and the challenges posed by inflation.
Despite a forecasted dip in living standards by 3.5% in 2024/25, the reduction in National Insurance contributions (NICs) promised in the Autumn Statement may counterbalance this setback, boosting real household incomes by approximately 0.5% by the end of the forecast period.
Unveiling the ‘back to work’ plan
One of the headline features of Hunt’s speech was the introduction of the Government’s ‘back to work’ plan. This multifaceted strategy promised additional support for those with health conditions, a boost to the minimum wage, and stricter benefits rules aimed at encouraging more people to rejoin the workforce.
The Chancellor’s commitment to creating opportunities for individuals to find and sustain employment set the tone for a series of personal changes that unfolded during the Autumn Statement.
Allocating the fiscal windfall
The Chancellor’s allocation of the £27bn fiscal windfall aimed to stimulate growth, empower the workforce and address pressing social issues.
Hunt used the windfall to offer a 2% cut in Class 1 NICs, permanent tax relief for business investment and support for vulnerable businesses.
Support for the self-employed
Acknowledging the vital role played by small businesses and the self-employed, the Chancellor announced measures to reward their hard work.
These included eliminating Class 2 National Insurance and reducing Class 4 National Insurance, with Hunt claiming this would save self-employed individuals an average of £350 annually.
Peering into the future: Interest rates and fiscal rules
The Bank of England’s stance on interest rates has remained firm, maintaining the base rate at 5.25%. Governor Andrew Bailey signalled a reluctance to entertain rate cuts, emphasising that it is premature to consider such a move.
Market expectations anticipate a modest peak in the Bank Rate before a gradual decline to 4% by 2029.
On the fiscal front, Chancellor Hunt adhered to the fiscal rules introduced a year ago, ensuring that underlying debt falls as a percentage of GDP in five years’ time. The OBR’s forecast indicated that national debt would peak at 93.2% in 2026/27 before declining in 2027/28.
Impact on individuals and businesses
The Autumn Statement heralded several personal changes designed to make work more rewarding.
A key highlight was the significant increase in the National Living Wage from £10.42 to £11.44 per hour in April 2024, benefiting over 2.7 million low-paid workers. The reduction in the age threshold for the National Living Wage, coupled with a 2% cut in the main rate of National Insurance, was set to impact millions, making strides toward “ending low pay” in the UK.
However, business experts have raised concerns about the financial impact on businesses, particularly small enterprises.
Benefits, pensions, and housing
Despite initial speculation to the contrary, the Chancellor reaffirmed the Government’s commitment to the ‘triple lock’ on pensions, announcing an 8.5% rise in pension payments.
Addressing the housing crisis, the local housing allowance rate was increased to cover the lowest 30% of market rents, benefiting 1.6 million households.
Final thoughts
In conclusion, the measures introduced in the Autumn Statement aim to strike a balance between stimulating growth, empowering the workforce, and addressing social issues.
As the economic landscape continues to evolve, these changes may set the stage for what the Government believes will be a more resilient and prosperous future for the United Kingdom.
Worried about how these changes apply to you? Feel free to contact us today to discuss the ramifications.