Presented as the Autumn Statement for growth, with signs that the UK economy may be steering back on track, Jeremy Hunt, the UK Chancellor, has shared his latest economic update. Peter Webb, our Head of Tax Advisory, reviewed the announcements and the key changes.
Against the backdrop of falling inflation, Jeremy Hunt appeared confident in his Autumn Statement. His announcements were wrapped up as the biggest tax cuts since the 1980s, giving a strong impression that the UK economy has now turned a corner. The reality is a little more subdued, with the Office of Budget Responsibility (OBR) downgrading its growth forecasts. Yet it appears that there is some light at the end of the tunnel, and certainly enough to give the Government a sense that it can begin to position itself as the instigator of growth and productivity, after the damaging fallout of the pandemic and brush with recession.
Ahead of his announcements Mr Hunt took time to remark on inflation – one of the watchwords of this year. Last week came the news that inflation has fallen – down from 11.1% to 4.6% – confirming that the Government has achieved its well-publicised target of halving price rises. However the rates aren’t quite moving as quickly as first expected, and headline inflation is now expected to fall to 2.8% by the end of 2024, before hitting the 2% target in 2025.
There was a bit of contrition in the mix too. Alongside noting that their plans are working, Jeremy Hunt remarked that there is still work to do, and his plan for growth is certainly a lengthy one, consisting of 110 measures. So, what were the key announcements?
National Insurance
The headline-grabbing announcements centred around National Insurance. The main rates will be cut from 12% to 10%, and rather than taking effect at the start of the new tax year they’ll be active from 6 January 2024. In addition, the self-employed will benefit further with the abolition of Class 2 National Insurance contributions and a reduction of 1% in Class 4 contributions.
Pensions
Some good news came in the way of pensions. Firstly, the Government will honour its commitment to the triple lock arrangement and will increase the State Pension by 8.5% from April 2024. This could amount to an extra £900 each year for those currently claiming.
When it comes to private pensions, a consultation will be held on whether to give pension savers a “legal right to require a new employer to pay pension contributions into their existing pension”. This could help simplify UK pensions ensuring one pension pot for life.
Businesses and workers
There’s no doubt that the key receiver in this year’s Autumn Statement was British business. Announced was a permanent extension to full expensing – which allows companies to claim tax relief on investment. There was also a tax break for small businesses with a freeze on business rates. The National Living Wage was increased by 10% to £11.44 an hour.
There’s no denying that there’s a long road ahead. The economy is growing – but slower than forecast – as confirmed by the OBR. Tax freezes actually mean real-term spending cuts. Interest rates are likely to remain high, UK house prices look like they may suffer through 2024 and some of the main tax allowances, including Inheritance Tax remain untouched.
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