Autumn Statement means NI cuts, full expensing and rising tax burden
Chancellor Jeremy Hunt’s much anticipated Autumn Statement arrived today, replete with tax breaks and no less than 110 growth measures to combat the UK’s economic stagnation. But it failed to disguise the ever-increasing and potentially record-breaking tax burden.
In an almost hour-long speech in the Commons, Hunt’s third financial event as Chancellor outlined the government’s fiscal plans for the next six months as both parties get into position for next year’s general election.
Of the raft of changes to personal taxes, the most important was the National Insurance rate cut of 2 per cent (from 12 per cent to 10) affecting 27 million workers. Class 2 NI contributions for self-employed workers will also be scrapped. Invoking emergency legislation, Hunt said this would take effect from 6 January 2024, leading to speculation about a Spring election.
Also announced was a rise in Universal Credit of 6.7 per cent, using September’s rate of inflation rather than October’s lower figure of 4.6 per cent. Pensions will rise by 8.5 per cent and the triple-lock will be honoured. Both of these moves will come into force in April.
Local housing allowances will be unfrozen meaning that more families will have more monthly support to pay rent, with estimates that as many as 1.6 million households will have an average of £800 support.
There was also an announcement of a rise in the minimum wage to £11.44 for 21-year-olds and older, and today Hunt announced that mandatory work placements would start for job seekers who have failed to find a job after 18 months of intensive support. Should job seekers fail to engage with the mandatory placements after 6 months, they will risk losing all unemployment benefits.
Moving from personal to business taxation, the Statement was full of supply-side reforms aimed at jolting the country’s dire productivity. The headline-grabbing change here was the commitment to full expensing, meaning that businesses can write off the full cost of first-year plant and machinery investments. This makes the UK one of only three European countries, the others being Estonia and Latvia, to offer such an allowance.
The 75 per cent business rate discount for retail, hospitality and leisure businesses will be extended for another year. Four new investment zones (touted as “mini Canary Wharfs”) will be set up across England and Wales. There will be a freeze on alcohol duty until 1 August 2024 and legislation to fast-track local planning applications. Houses close to new power lines will have discounted electricity bills and a consultation will begin on potential legislation to allow any home to be converted into two flats.
Despite the government boasting that today’s Statement gives the British people £20 billion in tax cuts, there is a party-pooping caveat: frozen personal tax thresholds. These were frozen by Rishi Sunak when he was Chancellor in April 2021 and, when combined with inflation and wage growth, it means that more of workers’ income is dragged into the taxable amount. Thus, we have what is known as fiscal drag.
But what does this mean in real terms? According to the OBR, the frozen thresholds will raise an additional £44 billion in the year 2028-29 for the treasury. Also by 2028, four million low-paid workers will become new taxpayers, an additional three million workers will be paying the 40p rate of tax and 400,000 more will pay the 45p rate.
Unfortunately for Rishi Sunak and his new look Cabinet, fiscal drag and the increasing tax burden may steal the show today. While full expensing comes as a welcome boost to business investment and growth, this government is still imposing quite a personal tax burden. The nation spent, and borrowed, more than £350bn to deal with the unexpected in the form of the pandemic. For years, Britons will be paying the bill.
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