It had been thought (even at team Harbour Key), that this Autumn Statement would be a non-event, until the start of this week. In a major speech on the economy on Monday, the prime minister said: “You can trust me when I say we can responsibly start to cut taxes.”
Once this statement was made then the news/stories commenced. Discussions started about what tax cuts would be made, would it be a 1p cut to income tax, or would it be the abolishment of inheritance tax, then late last night rumours started regarding a cut to National Insurance Contributions (“NIC”).
NIC was the answer, with reductions announced to self-employed NIC and a cut of 2% (reduced to 10% from 12%) to the standard rate for the employed. More details regarding the NIC rate reduction can be found at the link below.
Other than the NIC, there were no other new tax cuts, but for some sectors existing reliefs have been extended for a further period, for example business rates for the retail, hospitality, and leisure sector.
The other big announcement was to State Pension, which from April 2024 will increase by 8.5%, to £221.20 a week, worth up to £900 more a year. Many had thought the triple lock promise, which guarantees pension going up in line with inflation, increase in earnings or 2.5% - whichever is highest, was to be abolished or The Chancellor would use the lower current inflation rate, as opposed to the higher rate relating to the month of September.
The backdrop to the tax cuts and the investment measures announced is the fall in the rate of inflation, increased tax receipts (see below), and the announcements in today’s statement of welfare changes.
Although the government are keen to advertise and shout that they are cutting taxes, the trend will continue that taxes are going up. The Office of Budget Responsibility (“OBR”) forecasts show a post-war high of 37.7% in taxation will be reached by 2028/29, under the current government plans. This increase is in the main due to "fiscal drag", the fact that the minimum requirement for paying each tax rate remains fixed, with no allowances for inflation or wage increases. As individuals’ earnings and/or pensions increase, the boundaries at which different rates of tax apply stay the same, which is leading to more people paying tax, or paying tax at a higher rate. As examples, the pensioner with state pension and some interest income following higher interest rates now paying basic rate income tax, previously covered by personal allowance, or the employee with an inflationary pay rise becoming a higher rate taxpayer. There was no announcement in the statement to increase income tax thresholds or allowances, and if this remains the case by 2028/29, frozen thresholds will result in "nearly four million additional workers paying income tax, three million more moved to the higher rate, and 400,000 more paying the additional rate".
We are not saying it is a bad Autumn Statement, as there were no tax increases, but it is not as tax cutting as promoted, although the NIC savings and state pension increase will be welcomed to help with the cost of living.
Some will argue that the statement was very politically motivated as opposed to economic, as part of next year’s election campaign, with announcements to help pensioners, the lower paid (with the minimum wage increase), and the NIC cut, as some believe the headroom is not there yet to consider any kind of tax cuts. The Chancellor admitted that difficult decisions have had to be made, which have prevented a recession with the UK economy growing, but caveated "our plan for the British economy is working. But the work is not done."
As ever the statement measures are aimed to increase productivity and grow the economy, with 110 measures! These measures included changes to the planning system and investment in the growth sectors of the UK economy (creative (the Chancellor mentioning the Barbie film), life sciences, clean energy etc). The UK manufacturing sector is set to benefit from £4.45bn in support, which will help "unlock investment" and drive the transition to Net Zero.
The Prime Minister set himself five foundation targets at the start of the year, of which two were economic. The Chancellor advised these would be met and why he could consider tax cuts and investment.
- Inflation to be cut by half, at the time of the pledge inflation was 11.1%, now 4.6%. The OBR states headline inflation will fall to 2.8% by the end of 2024, before falling to the 2% target in 2025. The Bank of England is already warning that interest rates will not fall immediately, as the inflation position is still in the balance.
- National debt to fall to secure the future of public services. Headline debt is now predicted to be 93% of GDP by the end of the five-year forecast period. The OBR forecasts that underlying debt will be 91.6% of GDP next year, 92.7% in 2024-25, 93.2% in 2026-27, before declining in the final two years of the forecast to 92.8% in 2028-29. This means the government will meet its fiscal target of having national debt falling in five years' time.
As is now the norm, some measures were leaked in advance of the speech, the main one being the increase in the national minimum wage available to those aged 21-year-olds and over, with an increase in the hourly from £10.42 to £11.44. It was also confirmed that for 18 to 20-year-olds and apprentices will increase. An additional cost that employers will need to factor in.
There were a few more points in the supporting documents released post the speech which we have summarised in our blog below.
Our summary of the key points for our client base can be found here.
