UK chancellor Jeremy Hunt has cut national insurance by 2 percentage points and made business investment tax relief permanent, as he put a £20bn tax giveaway at the heart of his Autumn Statement.
Hunt claimed the British economy was “back on track” and that his package of tax cuts would boost growth without imperilling the fight against inflation.
His package left space for further pre-election tax cuts in next spring’s Budget, but was dwarfed by the impact of the government’s decision to freeze tax thresholds at a time when inflation is still more than twice the Bank of England’s 2 per cent target.
“While personal and business tax cuts reduce the tax burden by half a percentage point, it still rises in each of the next five years to a postwar high of 38 per cent of gross domestic product,” said the independent Office for Budget Responsibility.
Rachel Reeves, shadow chancellor, accused the government of presiding over record tax rises because of such “fiscal drag”.
Despite the impact of inflation, the chancellor also opted to make few changes to spending plans, a move that critics say will leave government departments exposed to unfeasibly large real-term cuts.
The OBR predicted that, when adjusted for inflation, total departmental spending would fall by £19bn.
In a highly political statement, Hunt said he would cut the main rate of national insurance by 2 points to 10 per cent from January 6 — the start of what is expected to be an election year — with a cost of about £9bn.
The other big measure saw Hunt make permanent the “full expensing” capital allowance regime, at a cost rising to £11bn. He said it would give Britain “one of the most generous tax reliefs anywhere in the world”.
Hunt claimed that, with inflation falling to 4.6 per cent and the OBR showing that debt was on a sustainable path, it was time to take the foot off the fiscal brake.
According to the OBR, the UK’s fiscal deficit is now on track to drop to 1.1 per cent of GDP by 2028-29 compared with 5 per cent last year — partly because of the government’s stance on departmental spending.
“Our plan for the British economy is working but the work is not done,” the chancellor said, as he set out 110 supply-side measures, intended to boost business, bring the sick back to work, and get more capital flowing into the economy.
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In what he called “the largest business tax cut in modern British history”, Hunt confirmed the government would make permanent the “full expensing” regime for private sector investment.
The scheme, which was due to expire in 2026, allows a company to immediately deduct all of its spending on IT equipment, plant or machinery from taxable profits. Extending it was a priority for business groups.
The chancellor said the measures would increase business investment in the economy by about £20bn a year within a decade and was “a decisive step towards closing the productivity gap with other major economies”.
He added that the OBR expected the economy to grow 0.6 per cent this year and 0.7 per cent next year. This compares with the OBR’s previous forecasts of a 0.2 per cent contraction this year and 1.8 per cent growth in 2024. The Bank of England expects growth to remain flat next year.
In its response, the OBR said the impact of the Autumn Statement measures on output growth were “modest”.
“The chancellor spends this windfall on cuts in national insurance contributions, permanent upfront tax write-offs for business investment, and a package of welfare reforms, which together provide a modest boost to output of 0.3 per cent in 5 years,” it said.
The Tony Blair Institute, the think-tank founded by the former Labour prime minister, added that the “pre-election giveaways . . . will put further pressure on the public finances.”
Tom Smith, director of economic policy, said: “Whoever wins the election next year will face a stark choice between steep cuts to unprotected public services, or more tax rises to help restore them.”
Financial markets’ response to the Autumn Statement was also muted. Gilt yields edged up from a five-month low, reflecting falling prices, after the Treasury announced a slightly smaller reduction in bond sales this year than analysts had expected.
Sterling fell 0.4 per cent against the US dollar. The FTSE 100 was down 0.2 per cent, roughly where it had traded before Hunt began speaking.
Referring to the government’s 38.6 per cent stake in the high street lender NatWest, a legacy of the financial crisis, the Chancellor said he would “explore options for a NatWest retail share offer in the next 12 months”.
The UK is seeking to stem the flow of British businesses listing in New York, lured by perceived higher valuations and a deeper pool of capital.
Hunt said he would set a new target to keep public spending growth below overall economic growth “while always protecting services”.
The chancellor confirmed that the state pension would rise by 8.5 per cent in April and that universal credit and other benefits would increase by 6.7 per cent in line with September inflation, rather than the lower October level.
The OBR forecast that living standards, as measured by real household disposable income per person, would be 3.5 per cent lower in 2024-25 than their pre-pandemic level.
“While this is half the peak-to-trough fall we expected in March, it still represents the largest reduction in real living standards since Office for National Statistics records began in the 1950s,” it said.
Hunt also promised measures “to unlock the building of more homes” in the UK, which has consistently fallen short on government house building targets.
These include a plan to refund planning fees if local authorities take too long to handle applications and £32mn to “bust the planning backlog”. Hunt also said that he would freeze duty on alcohol, a move applauded by the industry.
Additional reporting by Jim Pickard and Tommy Stubbington
