In the midst of economic challenges, Chancellor Jeremy Hunt’s Autumn Statement sought to chart a course for economic recovery. Let’s delve into the key announcements and their implications for households and businesses.
A fiscal pivot: Tax cuts take centre stage
As the UK continues to face a cost-of-living crisis and a sluggish economy, Chancellor Jeremy Hunt hoped to shift the narrative. Armed with a £27 billion fiscal windfall, Hunt focused on easing the tax burden for both households and businesses.
Key tax measures
The Chancellor unveiled a total of 110 measures to spur economic growth.
The most notable changes included a 2% cut to the main rate of National Insurance (NI) from 6 January 2024, accompanied by incentives for business investments, including the extension of the full expensing scheme.
Hunt also defied media speculation by holding off on changes to inheritance tax or income tax.
Economic landscape: OBR insights
Economic growth adjustments
The OBR highlighted the economy’s resilience to pandemic shocks but acknowledged persistent inflation and higher-than-expected interest rates.
Despite the Statement’s ambitious measures, the Office of Budget Responsibility (OBR) downgraded its growth forecasts for 2024 and 2025.
Growth forecast overview
The economy is set to grow by 0.6% by the end of 2023, contrasting with the predicted recession in the previous forecast.
Projections for 2024 and 2025 were revised downward, challenging earlier expectations of stronger growth. Living standards, as measured by real household disposable income (RHDI), were forecasted to be 3.5% lower in 2024/25, rebounding in 2027/28.
The Autumn Statement came shortly after news that inflation fell to 4.6%, meaning the Prime Minister met his pledge to halve inflation by the end of 2023.
How did Hunt allocate his £27bn fiscal windfall?
The Chancellor used the Treasury’s £27bn to provide various tax-cutting measures to reward hard work, while ensuring debt and inflation keep falling.
Interest rates and fiscal rules: A forward look
Interest rates forecast
- The Bank of England’s base rate, after 14 consecutive hikes, maintained at 5.25%.
- Despite a fall in inflation, rate cuts are not on the immediate horizon, signalling cautious optimism.
Fiscal rules and public debt
- Chancellor Hunt adhered to fiscal rules dictating underlying debt reduction as a percentage of GDP.
- OBR forecasts show a decline in underlying debt after peaking at 93.2% in 2026-27.
Personal changes: Empowering the workforce
The Government’s ‘back to work’ plan, an integral part of the Autumn Statement, aimed to support over one million people in re-entering the workforce.
Key features include pay rises, tax cuts, and extra support for job seekers.
National Living Wage boost
Hunt announced a significant increase in the National Living Wage from £10.42 to £11.44 per hour, effective April 2024.
He also reduced the age threshold for the National Living Wage from 23 to 21, benefiting 21 and 22-year-olds.
Class 1 NICs
According to the Chancellor, a 2% cut in the main rate of National Insurance will benefit 27 million people from 6 January 2024.
Impact on individuals and businesses: Navigating thresholds and challenges
Threshold freezes impact
Despite larger pay packets for individuals, threshold freezes may pull more into higher tax bands. In fact, the OBR’s forecast predicts that fiscal drag will raise around £46bn annually for the Treasury by 2028.
Concerns and controversies
The increase in the National Living Wage has been met with concern by industry experts, who claim the measure could put financial strain on many businesses.
Some charities also criticised the tougher benefits rules the Government plans on introducing to encourage people to get ‘back to work’.
Pensions triple lock assurance
The Government remains committed to the ‘triple lock’ on pensions, meaning that state pension payments will rise by 8.5% in 2024/25.
Support for the self-employed
Hunt announced several measures to benefit the self-employed, including eliminating Class 2 NICs and reducing Class 4 NICs, aiming to save self-employed individuals an average of £350 annually.
The Autumn Statement also confirmed that self-employed individuals and landlords making less than £30,000 a year will not need to comply with Making Tax Digital for income tax self-assessment (MTD for ITSA) rules when they first roll out in 2026.
Keeping an eye on the future
As we navigate the aftermath of the 2023 Autumn Budget, staying informed and adapting to these changes will be key.
The Chancellor’s strategic approach aims to balance economic recovery with fiscal responsibility, setting the stage for a resilient and prosperous future.
As your accountants, we can help you navigate your way through this new tax landscape with ease.
Any questions? Contact us today.