With a General Election looming on the horizon, Jeremy Hunt rose to deliver his second Autumn Statement as Chancellor in the knowledge that his latest measures could have a substantial impact, not only on the future economic success of the nation but the electoral success of his own party.
Taking away the politics from his announcements, the Chancellor launched into his Autumn Statement with the news that inflation had more than halved this year and that the Government had fiscal headroom of up to £25 billion thanks to the additional tax receipts accrued due to rising incomes and frozen tax rates.
As the Chancellor said, the Government had taken difficult decisions to put the country back on track and prevent a recession.
This gave Jeremy Hunt a greater ‘War Chest’ and more room to deliver on the promise of tax cuts made days before by the Prime Minister.
Nevertheless, the Chancellor still had to strike a fine balance and try to not only deliver tax cuts but also financial surety and economic stability – for businesses and individuals alike.
In announcing his measures and future consultations, Jeremy Hunt concluded his speech by saying this was an “Autumn Statement for Growth” thanks to his 110 business-boosting measures.
- The Economy and Inflation
- Support for Small Businesses
- Future and Innovation
- Assisting with the Cost of Living
- Pensions
- Final Thoughts
Going into the Autumn Statement the Chancellor already knew that he had hit the Government’s target of halving inflation by the end of 2023.
The Office for Budget Responsibility (OBR) confirmed that the rate had already hit 4.6 per cent and would fall again to 2.8 per cent in 2024 and again to 2 per cent in 2025.
Jeremy Hunt said he would not take any risk with inflation and would continue to bring the rate down.
Whilst this is largely positive news, back in March the OBR estimated that inflation would fall to 0.9 per cent in 2024, meaning that inflation remains fairly persistent for a longer period, which could impact future decisions by the Bank of England’s Monetary Policy when it comes to setting the base rate in future.
More broadly, the latest GDP projections indicate that UK growth is more robust than anticipated this year, but not as strong as initially expected in 2024, 2025, and 2026.
The latest forecast shows that GDP growth will reach 0.6 per cent this year before rising to 0.7 per cent next year.
This means next year’s figures are down on the OBR’s previous estimates from March, which suggested growth of 1.8 per cent in 2024. In the following year, GDP growth will rise again to 1.4 per cent before growing to 1.9 per cent in 2026.
Having run a small business himself, the Chancellor said that he understood the pressures they faced and wanted to boost their growth and productivity.
To support those businesses in the hospitality, retail and leisure sectors, Jeremy Hunt confirmed that the 75 per cent business rates discount would be extended. The Chancellor also confirmed that he would freeze the small business multiplier for a further year.
However, his big announcement was that he would permanently extend the Full Expensing capital allowance, to provide certainty to businesses looking to invest.
Originally due to end in 2026, the establishment of this Corporation Tax relief as a permanent allowance is thought to be worth over £10 billion a year – making Full Expensing the biggest business tax cut in modern British history according to the Government.
Building on the previous Budget’s creation of Investment Zones, the Government will plan to create 12 investment zones in the spring including new areas in the West Midlands, the East Midlands and Greater Manchester.
The tax reliefs for freeports and investment zones will also be extended from five years to 10 years. Alongside this, there will be £80 million for new projects in Scotland, Wales and Northern Ireland.
Looking to the future and the UK’s fast-growing technology economy, Jeremy Hunt announced a package of funding and support for innovative businesses.
Amongst these measures was an additional £500 million funding for UK artificial intelligence (AI). The Government will invest in more “innovation centres” to help make the UK an “AI powerhouse” over the next two years.
The Chancellor is also due to publish plans to make £4.5 billion available over the next five years to unlock further private investment into strategic manufacturing sectors, including additional money for electric cars and the life sciences industry.
Many were also expecting changes to R&D tax relief, and while he quickly mentioned it in his speech the greater detail was to be found in the Autumn Statement documents.
Following previous proposals and consultation, the documents confirmed that the current Research and Development Expenditure (RDEC) and SME schemes will merge. Expenditures from accounting periods starting on or after 1 April 2024 will be eligible for the combined scheme.
This merger represents a significant simplification of tax rules, introducing unified qualifying criteria and a more transparent credit system. The hypothetical tax rate for loss-making entities in this merged scheme will be reduced from the current RDEC’s 25 per cent to 19 per cent.
The threshold for additional tax relief for R&D-intensive, loss-making SMEs will also be lowered from 40 per cent to 30 per cent. This adjustment will bring about 5,000 more R&D-intensive SMEs into the relief’s purview. The Government will also implement a one-year grace period, allowing companies falling below the 30 per cent R&D expenditure threshold to continue receiving relief for a year.
However, from 1 April 2024, R&D tax credit claimants will now be unable to designate a third-party recipient, except in limited cases. Additionally, new assignments of R&D tax credits will cease from 22 November 2023. Generally, R&D tax relief payments will be made directly to the claiming company, ensuring better control and expedited receipt of funds.
Assisting with the Cost of Living
A dominant factor in many people’s lives has been the cost of living due to high inflation rates. Whilst inflation has fallen, many individuals are still experiencing the daily impact of higher costs and so the Chancellor wanted to make it clear that the Government was there to support people.
Key to this was the headline announcement of a cut to the employee National Insurance rate from 12 per cent to 10 per cent from 6 January 2024. This means that individuals earning the national average wage of £35,400 will receive a tax cut in 2024-25 of over £450.
To help self-employed individuals, the Chancellor confirmed further changes to National Insurance, including the abolition of Class 2 NIC.
Currently, self-employed individuals earning over £12,570 must pay a weekly fixed rate of Class 2 National Insurance Contributions (NICs), which was set to increase to £3.70 from 6 April 2024.
At the same time, the main rate of Class 4 NICs will fall from 9 per cent to 8 per cent – providing further savings to the self-employed.
The Chancellor also confirmed that the National Living Wage (NLW) would rise to £11.44 per hour from 1 April 2024, while the NLW will be expanded to include 21-year-olds for the first time by lowering the age threshold.
The Government will uphold pensioner incomes by preserving the Triple Lock and adjusting the basic State Pension, new State Pension, and Pension Credit standard minimum guarantee for 2024-25 in accordance with the average earnings growth of 8.5 per cent.
The Government will also address the persistent issue of “small pot” pensions by initiating a call for evidence on a lifetime provider model.
This approach would enable individuals to have their contributions transferred to their existing pension scheme when they switch employers, offering more autonomy and oversight over their pension.
Jeremy Hunt said he will consult on giving pension savers a “legal right to require a new employer to pay pension contributions into their existing pension”, which could provide an “extra £1,000 a year in retirement for an average earner saving from 18”.
As previously confirmed, the Government will legislate in the Autumn Finance Bill 2023 to remove the Lifetime Allowance. This will take effect from 6 April 2024.
The outcome of this Autumn Statement is perhaps not surprising given the fiscal buffer available to the Chancellor going into his speech and the upcoming General Election in 2024.
While there are many benefits provided through Jeremy Hunt’s 110 measures, the devil is in the details and the reality is that many individuals and businesses will go into 2024 with concerns about costs, alongside the support being provided.
Link: Autumn Statement 2023