Today’s Autumn Statement saw Chancellor Jeremy Hunt provide an update on the state of the UK economy and announce new tax and spending plans. These policies impact consumers and businesses right across the UK. The Chancellor’s emphasis was on growth, support for business and measures to make work pay.
Headline figures of cuts to National Insurance and measures to reduce corporation tax will be welcomed by workers and businesses however must be considered in the context of wider restraint in public investment and continued cost of living pressures. While inflation has reduced significantly, prices are still rising and many across the country will see little additional cash – if any – in their pockets as a result of today’s announcements. Decisions on business rates, and many of the Chancellor’s 110 business growth measures, apply to England only. In Northern Ireland, the absence of an Executive – and the requirement for additional Barnett Consequentials to be used to pay off an existing overspend – limits scope for consequential funding to be used to extend these measures.
While the Chancellor stated the Government’s plan for the economy is working, the OBR has downgraded growth forecasts for 2024 and 2025. The Office for Budget Responsibility (OBR) forecasts that living standards in 2024-25 will be 3.5% lower than pre-pandemic – the largest reduction in living standards since records began in the 1950s.
Key announcements include:
National Insurance cut: The rate of National Insurance has been cut from 12% to 10% for employees earning between £12,570 and £50,270. The change will come into effect from 6 January 2024 rather than April 2024. This will reduce the amount of National Insurance paid by employees and Employers’ National Insurance contributions. However, Income Tax Thresholds remain frozen meaning that many people will be paying more tax as a result.
Increase in the National Minimum Wage: The National Living Wage will increase by more than a pound to £11.44 per hour from April 2024. The age at which the rate applies will also reduce from age 23 to age 21. This is an uplift worth over £1,800 a year for a full-time worker. The Minimum wage for younger workers will also increase. This is a move that will be welcomed by those who are in lower income employment and is key to helping reduce levels of in-work poverty. However, it will also put pressure on small businesses – particularly those within sectors such as retail, hospitality and childcare – impacting on their bottom-line profitability. For some, efficiencies and savings may be required to offset rising staff costs. Others may have to explore price increases. While the freezing of business rates in England, and a continued reduction for retail, hospitality and leisure, will help to make the risk in the National Living Wage more affordable for small businesses these measures do not apply in the devolved administrations.
It is important to note that the rates announced by the Chancellor differ from the Real Living Wage, a rate that is voluntarily paid by employers – including CARD Group Research & Insight. The Real Living Wage is currently £12 an hour for all workers, irrespective of age, with a separate London weighted rate.
Benefits uprated: Benefits will be uprated by 6.7% – the September 2023 rate of inflation – from April 2024. This is a positive move with speculation having mounted that the lower rate from October 2023 may have been used.
The State Pension triple lock was confirmed and the State Pension will increase by 8.5% from April 2024.
Local Housing Allowance has been unfrozen, going some way to supporting private renters with increasing costs.
Measures to move more people into work: Focusing on those who are economically inactive due to sickness or disability, the Chancellor announced a new package of measures including welcome investment in more personalised employment support and talking therapies. However, this is countered by tougher conditionality measures exposing more people to benefits sanctions, a move that risks pushing more of our most vulnerable further into financial distress while making it harder for people to engage with employment support.
There is also a risk that people will be forced into roles that they may be unsuited for, placing quality and service at risk, and creating pressure for employers and employees alike.
Pension reform: A consultation will be carried out on giving savers a legal right to require a new employer to pay into their existing pension pot when they move jobs, enabling workers to retain one pension pot across their careers.
Support for small businesses: Following a strong campaign from the Federation of Small Businesses (FSB) the Chancellor announced a welcome clamp down on larger businesses making late payments to suppliers.
The full expensing of capital spending – enabling companies to offset 100% of qualifying spend against profits – has been made permanent, lowering corporate tax bills. This is a welcome move for businesses designed to promote investment. Qualifying spend includes ‘plant and machinery’ such as computers, office equipment, commercial vehicles and some fixtures. Further detail is available here.
For the self-employed, class 2 National Insurance has been abolished while retaining state pension rights, and class 4 National Insurance has been cut from 9% to 8%.
A new and simplified Research and Development Tax Relief will be created, and further investment allocated to innovation centres across the UK, aimed at driving innovation in the UK.
The Chancellor announced 110 growth measures including in relation to skills, planning and the freezing of business rates and the small business multiplier, as well as a continued rates discount for retail, hospitality and leisure. As these areas are largely developed many of the growth measures will apply to England only.
Northern Ireland: As well as not benefiting from many of the Chancellor’s growth measures, it was confirmed this week that Northern Ireland will not benefit from Levelling Up funding and – while Northern Ireland will get total additional funding of £185 million this year and next as a result of the Autumn Statement – it is unclear how much of this will go towards repaying last year’s budgetary overspend of almost £300 million. Treasury figures suggest the Stormont Departmental Budget will be unchanged in cash terms next year – meaning a real term cut – while the Capital Budget will fall in cash terms. This will put further pressure on public services that are already stretched to breaking point, with Stormont on course for a £450 million overspend this year.
What wasn’t announced:
Cost of living support: There were no new measures announced to extend support for households and businesses with the cost of living.
VAT: The rate of VAT remains untouched.
ISAs: Changes to ISAs are detailed in the documents accompanying the Chancellor’s speech however there was no increase in the ISA allowance.
Inheritance Tax: No changes were announced to Inheritance Tax.
Targeted action on childcare: While the Chancellor’s speech suggested childcare had been done and dusted at the Budget in April 2023, this fails to reflect the reality in Northern Ireland where a lack of investment in childcare, and rising costs, are hampering the sustainability of the sector and – critically – the ability of parents to enter and progress in the workforce. As called for by the Northern Ireland Chamber – working with members and key stakeholders across the business and childcare sectors – the Chancellor had an opportunity to reform the UK-wide Tax-Free Childcare support scheme as well as build on the existing workplace nursery model. Failing to do so is an opportunity missed to drive productivity, innovation and business growth.
Commenting on today’s Autumn Statement, CARD Group Research & Insight Chief Executive Albert Hamilton said: “While there were welcome measures announced by the Chancellor to drive business growth and investment today’s Statement was a mixed bag. Many families and small businesses will continue to feel significant pressure on their budgets and, in Northern Ireland, the continuing absence of an Executive means we are not feeling the benefit of initiatives such as levelling up funding and regional investment zones. While small businesses in England will benefit from measures such as a freeze in small business rates, their counterparts in Northern Ireland must not be left behind.”
For more information, you can find the full supporting documents for the Autumn Statement 2023 here.