Autumn Statement 2023
November 29, 2023
Last week, Chancellor of the Exchequer Jeremy Hunt delivered his Autumn Statement. Now that most of the dust has settled, we would like to offer our analysis of some of the main announcements for the technology, financial services, energy, and manufacturing sectors. You can read the speech in full here.
Most commentators would agree that Hunt’s decision to cut taxes rather than consolidate public finances was politically loaded and dictated by two main concerns: keeping the right wing of the Conservative Party at bay and producing positive headlines ahead of the General Election. According to the Institute for Fiscal Studies (IFS), the sizeable permanent tax cuts announced last week “are smaller than the tax rises announced since 2021 and therefore the tax burden is still forecast to continue rising to record UK levels”. This will not go down well within his own party.
The narrative went like this: we managed to halve inflation as promised (from 11.1% to 4.6%) and borrowing and debt are falling. Labour will trash the economy, but you can trust us.
Unfortunately for the Chancellor, the Office for Budget Responsibility’s (OBR) post-measures forecasts were less optimistic. If anyone is keen, here is their response in full. For those who are less inclined to go through it, we can roughly summarise it as follows:
- The tax cuts and the package of welfare reforms will provide “a modest boost to output of 0.3% in five years”.
- Living standards are forecast to be 3.5% lower in 2024-25 than their pre-pandemic level: “While this is half the peak-to-trough fall we expected in March, it still represents the largest reduction in real living standards since Office for National Statistics (ONS) records began in the 1950s”.
- Annual growth in the economy from 2024 to 2027 is now forecast to average 1.5% per year, compared with 2.1% per year in March.
The Bank of England also expressed concerns and warned against underestimating the persistence of UK inflation. However, the tax cuts for businesses could have a real – although more modest than the Government wants people to believe – impact on investment and growth over the medium term.
For example, announcements around the “full expensing” (permanent 100% capital allowance) cut to corporation tax were generally welcomed as measures focused more on medium-term growth. The CBI and other businesses in general have been campaigning for this, and the Labour Party supports it too. We will break down some of the most relevant announcements below in the report attached.
Overall, while some measures announced, including the reforms on pensions, planning and public-sector productivity, are welcomed, the Autumn Statement is far from representing a shift to the long-term strategy that the Government claims.
An early General Election?
Speculations around a date for the next General Election have resumed particularly because measures such as the cut to the main rate of National Insurance will come into force in January, rather than April, which would be more typical.
We believe that the Government will not call for an election in May. This is why.
A recent YouGov survey for The Times suggests the Autumn Statement gave the Conservatives a four-point boost among voters but the Labour Party is still leading by 19 points. However, people remain negative about the state of the economy.The Government continues to face challenges that can impact its credibility.
At the last Party Conference, the Prime Minister scrapped the northern leg of the HS2 and replaced it with Network North, promising £36 billion to build it. This week, the Financial Times reported that Sir John Armitt, chair of the National Infrastructure Commission, said that some costings of the new project seemed to have been “plucked out of the air”.
It has become increasingly hard for the Prime Minister and his Cabinet to carve a narrative that would help restore people’s trust because he is trying to distance himself both from Truss’ reckless tax cuts and Labour’s plans for borrowing.
Immigration represents a permanent headache for him and, alongside the economy, is going to be the election campaign’s leading issue. According to the Office for National Statistics (ONS), UK net migration in 2022 has been revised up to 745,000 from a previous estimate of 606,000. This, along with the challenges raised by the Rwanda judgment, is making it extremely hard for Rishi Sunak to show progress on the Conservative Party’s pledge to cut migration. To add to that, Reform UK, the former Brexit Party led by Farage, is expected to erode some Conservative votes (as well as some Labour ones), exposing the party to defeat on issues such as immigration.
This means that the Government will try to buy as much time as possible to demonstrate that it can fulfil its pledges, given that challenges related to immigration and the economic outlook are not going to improve over the next couple of months.
Should the Labour Party win the election in 2024, it will inherit a far from robust economy and public finances. The IFS Director, Paul Johnson, said: “The fiscal forecasts have not in any real sense got better. Debt is not declining over time. Taxes are still heading to record levels. Spending is also due to stay high by historic standards […]. I’m not sure I’d want to be the chancellor inheriting this fiscal situation in a year’s time”. Labour has basically signed up to Hunt’s cuts to public spending, leaving them with some tough decisions about how they can justify spending and investment in some of the changes they would like to make.
- All changes to tax arrangements announced in an Autumn Statement must be approved via a Finance Bill, which is currently going through Parliament.
- This week, the Treasury Select Committee is hosting three hearing sessions to further question the Chancellor and relevant stakeholders, and it will produce a report either before or immediately after Christmas. The Government’s response is due within two months after that.
- The Spring Budget, the next big fiscal event, will take place in March 2024 and we can expect announcements about more substantial tax cuts.
How organisations can engage ahead of the General Election
We discussed some initial recommendations and a likely timeline for engagement in our recent blog here. For those organisations willing to feed into the making of the Spring Budget, this is also a good time to engage as the Treasury will start holding conversations with stakeholders and other government departments soon.
Overall, any organisation able to help the existing Government or a future Labour one to improve productivity, particularly when it comes to the public sector, would be more than welcome by both parties and is likely to receive attention and time.
How FINN Partners can help
Our team of specialists has worked with the UK government, regulatory bodies, local authorities as well as the EU Commission and Parliament. We have experience across multiple sectors including energy, manufacturing, built environment, financial services, technology and internet regulation, professional services, NGOs and charities, sustainability and ESG. Our corporate communications and global intelligence teams are also an integral part of our integrated offer to clients.
Please do get in touch if you have any questions or would like to discuss how the public affairs team can support your business ahead of the General Election.
Carolina Gasparoli, Vice-President, London Office: email@example.com