A few weeks removed from the ‘lacklustre’ King’s Speech, in which King Charles laid out Rishi Sunak’s political agenda for the year ahead, the Conservative government had their third and last strike to sway voters and businesses ahead of the general election. Chancellor Jeremy Hunt laid out in his Autumn Statement for Growth, a strategy to alleviate debt, reduce taxes, and foster economic growth.
Economic growth was the government’s big mover, focusing on infrastructure, housing, and planning reforms. Key initiatives included accelerated infrastructure project approvals, investments in high-quality nutrient mitigation schemes, and significant support for clean energy businesses to access the electricity grid.
Addressing the persistent issue of inflation that had plagued the global economy, the Chancellor highlighted a noteworthy reduction from 11.1% to 4.6% since taking office. The Office for Budget Responsibility predicts a further decline to 2.8% by the end of 2024, reaching the 2% target in 2025.
In response to the cost of living crisis, the Chancellor introduced a series of measures, including a 6.7% increase in Universal Credit and benefits, adjustments to the Local Housing Allowance, and a substantial 8.5% rise in the new state pension from April 2024.
Pension fund reforms were introduced to increase capital flow to growth companies and improve outcomes for savers. The Chancellor announced plans to consolidate the industry, support investment vehicles, and consult on giving savers the right to transfer pension contributions to a new employer.
Shifting attention to the workforce, the Chancellor highlighted supply-side reforms designed to enhance incentives to work. Welfare reforms, including a Back to Work Plan for those with sickness or disability and the long-term unemployed, aimed to significantly reduce the net flow of people signed off work with no work search requirements, as per the OBR projections. Additionally, there was a pronounced focus on ending low pay, with a 9.8% increase in the National Living Wage to £11.44 an hour, constituting the largest cash increase in its history.
A notable announcement for the self-employed was the Chancellor’s plea to significantly reduce the main rate of Employee National Insurance from 12% to 10%, poised to benefit 27 million people.
But what does it all mean?
Boxed in on all sides by the highest inflation figures in the G7, high levels of demand for expenditure on public services, stagnant economic growth and the ghost of The Right Honourable Elizabeth Truss MP, but with some additional ‘fiscal headroom’, the Chancellor today had to deliver a pre-election financial statement that would bolster the economy and raise the spirits of an increasingly disenchanted electorate.
His approach has broadly been to focus on measured moves to help bolster economic growth and private sector investment, without adding additional fuel to fire a rise in inflation. Making the full expensing policy a permanent rather than temporary measure was expected, and priced in by analysts. The only reason it was ever temporary was that including it in earlier budgets would have meant the Chancellor couldn’t have met his longer-term fiscal rules. It was always madness that our tax system disincentivised business investment, so this is a smart move that ought to boost longer term growth without provoking a short-term spike in inflation.
Elsewhere, the focus on incentivising more private sector investment was repeated as he announced further changes to the private pensions system, accepting ‘in principle’ the recommendations of Lord Harrington’s review of foreign direct investment, extending the time period for freeport tax breaks and increasing the number of investment zones.
The slump in housebuilding since last year’s ‘mini’ budget is one of the biggest impediments to getting the economy growing. Changes to the planning system, including allowing councils to recoup full costs along with funding for more local housing will be welcomed but these changes do not address the fact that targets need to be reimplemented and that high borrowing costs are making schemes unviable.
The trailblazer devolution deal announced for the North East brings it in line with the deals enjoyed in Greater Manchester and the West Midlands while Greater Lincolnshire, Hull and East Yorkshire, Lancashire, Cornwall and Surrey all seem to be set for new or enhanced devolution settlements. The experience of other areas that have already got these deals is positive and this should lift each of these areas.
The headlines will be grabbed by the cut in National Insurance and the uplifts in benefits and pensions. Council finance officers will be allowed a brief sigh of relief at the news that LHA rates are being lifted, but without more homes being built the homelessness pressures will not disappear. More needs to be done to ease the human cost of insecure housing and the financial burden carried by council tax payers, as local authority budgets are swallowed up by temporary and emergency accommodation costs.
This was a statement that looked ahead to the next general election. The 8.5% rise in pensions and the cut in National Insurance will secure some wavering votes for the Prime Minister. The electoral task at hand requires much more than securing a few votes though. Today will shift the dial a little, but the Conservative Party need that dial to shift much further if Rishi Sunak is to prevent a Labour victory in 2024.