Our thoughts on the 2023 Autumn Statement
Yesterday, (22nd November 2023), the latest Chancellor of the Exchequer, Jeremy Hunt, delivered the Government’s annual Autumn Statement to provide updates on the state of the UK economy as well as new plans for spending and tax.
Though this fiscal event often pales in comparison to the Spring Budget, yesterday’s announcement comes at a crossroads for the Conservative Party. In the midst of an ongoing nationwide cost of living crisis and with the current Government currently far behind in the polling, this was a significant opportunity for the party to appeal to voters ahead of next year’s General Election.
Previously, Jeremy Hunt said that "everything is on the table" when it came to tax cuts. Also, earlier in the week, he announced that the National Living Wage is set to rise by more than a pound to £11.44 per hour from April next year with the rate now applying to 21 and 22-year-olds for the first time.
Beginning his statement, Chancellor Hunt said that the Conservatives would “reduce debt, cut taxes and reward work.”
With this in mind, here are three key updates from the announcement.
Crackdown on benefits
In the lead-up, Jeremy Hunt signalled that there could be a squeeze on benefits to help fund tax cuts. Yesterday’s statement confirmed that the Government would launch their new crackdown on benefits for those with mobility or mental health struggles unless they work from home. Claimants must find work within 18 months, after which they are either given a mandatory work placement or their payments will stop within six months.
Undoubtedly, this will be greatly felt by the most vulnerable in our society, potentially putting pressure on those with disabilities, as well as those with long term illnesses or problems with their mental health to find work. Whether the Government announces further plans for these groups to find work is yet to be seen.
On the positive, the news of an uplift to the Local Housing Allowance means that those on lower incomes will have more access to affordable housing which helps to reduce homelessness.
Benefits more generally were uprated by September’s inflation rate, which is the usual practice, rather than the lower October figure which had been trailed in the media as an option at one point. Of course only the cynical would imagine that this media briefing was meant to make the Government sticking to its promise on uprating feel like a win for the poorest in society when in reality even with this increase their incomes are in so many cases now less than the cost of the basics needed for survival.
Growth forecast downgraded / Inflation expected to fall more slowly
Forecasts from the Office for Budget Responsibility (OBR) showed that the economy will grow from 0.6% in 2023 to 0.7% in 2024. However, this won’t be reflected in living standards which are not expected to return even to pre-pandemic levels, let alone show any improvement, until 2027-28.
Inflation is set to fall to 2.8% by the end of 2024, down 11.1% from last year when Hunt and Sunak took their current positions. However, the OBR’s big book now states that inflation is expected to “remain higher for longer, taking until the second quarter of 2025 to return to the 2% target, more than a year later than forecast in March.”
This means that regardless of the initial news that the rate of inflation is likely to fall, things are looking like they are still going to be difficult for the next year and a half, following an already tough start to the decade for many.
National Insurance to be cut, taxes continue to rise
Chancellor Hunt announced a 2 percentage point cut to National Insurance (NI) which will benefit around 28 million people across the country, starting in January 2024. Roughly, those on an average salary of £35,000 will save £450 a year. Meanwhile, the self-employed will also receive a NI cut.
Though, on the surface, this will likely be welcomed by many, with the cost of living crisis still affecting millions, this relief is likely only going to go so far for those already struggling. Elsewhere, Shadow Chancellor Rachel Reeves said that the cut would not offset previous increases to National Insurance, and indeed tax as a proportion of the economy will continue to rise for some years.
Other key announcements included the news that the state pension is to rise by 8.5%, tobacco duty has increased by 10% and alcohol taxes have been frozen until 1st August 2024.
Hidden in the budget small print was the news that the tax giveaways, limited though they were, came at the expense of public services where the real value of budgets are forecast to be £19bn lower outside of a small number of ‘protected’ departments. This comes on top of years of reductions and means ever-greater pressure on public services which are in many cases already broken. Just two likely examples of what this will mean for us all are that it’s likely further councils will soon effectively be bankrupt and that housing will continue to be a major issue as the Government will not be spending enough to make a difference in building the homes people need.
On the whole, only some will feel the benefits announced in yesterday’s Statement. For the majority of individuals, families and businesses, it is unlikely to offer much hope in the coming months, especially as winter hits and energy usage and therefore bills are higher. Just the day after the Autumn Statement energy bills rose again from January 2024, immediately taking away nearly £100 of any gains made by the average household.
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