Autumn Statement: Hunt cuts national insurance by two per cent
Jeremy Hunt has announced a range of tax cuts in his Autumn Statement, including what he described as the “largest business tax cut in modern British history,” making full expensing permanent in an attempt to boost UK investment.
The Chancellor also announced a surprise cut in the rate of employee National Insurance by two per cent, from 12 per cent to 10 per cent, as well as a shakeup of taxes for the self-employed.
Other announcements included a much anticipated change to pensions and a major downgrade in growth expectations by the Office for Budget Responsibility (OBR).
Here’s a roundup of the announcements made by the Chancellor today.
Autumn Statement roundup from City PM
- The OBR say that headline inflation will fall to 2.8 per cent by the end of 2024 and below 2 per cent by the end of 2025. Underlying debt is now expected to be 91.6 per cent of GDP next year 92.7 per cent in 2024-25, 93.2 per cent in 2026-27. Meeting fiscal rule to have underlying debt falling as a percentage of GDP by the end of the OBR forecast, five years time. The OBR forecasts the economy will grow 0.6 per cent this year and 0.7 per cent in 2024
- The government is increasing universal credit and other benefits by 6.7 per cent, inline with September inflation reading. Unfreezing the local housing allowance and increasing the rate. Triple lock stays in place, from April 2024 the new full state pension will increase 8.5 per cent one of the “largest ever” increases in the pension, worth up to £900 more a year
- Freeze all alcohol duty until 1st August next year
- On spending: Recommits to spending 2 per cent of GDP on defence. Spending will rise one per cent a year in real terms over the period. Hunt said, “We need to see a more productive state, not a bigger state” and laid out a plan to push the public sector to increase productivity by at least 0.5% year
- Hunt said he will look to reform the planning system to allow local authorities to keep more money if they speed up planning. This included investing £32m to “bust the planning backlog” and a new permitted development right to allow “any house to be converted into two flats.” There’s also a plan to cut delays in connecting to the grid. Planning and grid reforms are set to “cut grid access delays by 90 per cent and offer up to £10,000 off electricity bills over 10 years” Hunt added.
- The government is investing £500m to fund innovation centres to make “us an AI powerhouse.” Hunt said there will also be £50m in funding over the next two years for apprenticeships while the government is making £4.5bn free for “strategic manufacturing investments” in the aerospace, manufacturing and green sectors
- Hunt will be extending the tax relief for freeports and investment zones for 10 years. He announced three investment zones focusing on advanced manufacturing as well as a £150m Investment Opportunity Fund for these zones
- On the topic of pensions, Hunt said he will consult on pension reforms and is looking into giving savers one pension pot for life
- In good news for small businesses, Hunt has decided to freeze small business, business rates this year and extending the 75 per cent discount for small businesses – at a cost of £4.3bn
- A cornerstone of the Chancellor’s speech was a major reform in self employed taxes. Class 2 National Insurance contributions will be abolished and Class 4 National Insurance for the self employed will be cut by 1 per cent. Hunt is also cutting the main rate of employee National Insurance by two per cent from 12 per cent from 10 per cent. The cut will be bought in from early next year “so people can see the benefit in their payslip from the beginning of next year”
- Full expensing will be made permanent, “One of the most generous tax reliefs anywhere in the world,” according to Hunt. This is expected to increase business investment by £20bn
- On the topic of welfare and getting people back to work Hunt outlined £1.3bn over the next five years to help people find jobs. The spending is designed to “more than half the flow of people who are signed off work with no sicknotes.” Notably, Hunt said if benefit claimants are off work for more than 18 months, they may lose their benefits.
- On wages, Hunt confirmed the government the living wage is going up by nearly 10 per cent to £11.44 per hour from April
Ahead of Autumn Statement here’s what was expected:
- A cut to National Insurance rates
- A fund for university spin-outs
- A £2.5bn overhaul of benefits and welfare
- Permanent ‘full expensing’ of capital investment
Ahead of the Autumn Statement the government said: “In today’s Autumn Statement for Growth, the Conservatives will reject big government, high spending and high tax because we know that leads to less growth, not more.
“Instead we will back British business with 110 growth measures to remove planning red tape, speed up access to the national grid, support entrepreneurs raising capital, get behind our fastest growing industries, unlock foreign direct investment, boost productivity, reform welfare, level up opportunity to every corner of the country and cut business taxes.”
The Chancellor was also expected to recommit the government to the Mansion House compact, which will see pension funds incentivised to invest in fast-growing British companies rather than the bond market.
Earlier this week the Prime Minister, Rishi Sunak, had said that with inflation halved it was now time to look at cutting taxes and delivering a long-term plan for growth.
There has been speculation for some weeks that the Chancellor would move to bring down taxes, though Treasury sources have indicated that tax-cutting measures are more likely to be targeted at business than individual wallets.
The big questions for the Chancellor ahead of the Autumn Statement
Will the Chancellor make a move on personal tax?
Changes to personal taxation have been floated now by Rishi Sunak in Monday morning’s speech, if “over time”, and by Jeremy Hunt during multiple interviews.
But most recently it was new Treasury chief secretary Laura Trott’s turn, who suggested to broadcasters on Tuesday that the economy – despite inflation still running at 4.6 per cent – was “in a very different place” and ministers could look at “cutting taxes for individuals”.
Just who these individuals are is yet to be revealed, but with all this kite-flying, a big fat nothing on personal tax would rather take the wind out of the government’s sails.
And what about inheritance tax?
Since the Office for Budget Responsibility (OBR) generously widened its estimate on fiscal headroom – with some forecasters estimating Hunt may have over £20bn to spare – clamours to cut the UK’s supposedly ‘most hated’ tax have only grown.
While deeply unpopular among Conservative MPs, in recent days conversations have appeared to shift away from the idea.
Predictions at this stage are a fool’s game, but if we had to speculate, it feels more likely the policy could re-rear its head at the Spring Budget.
And will it make a difference to the politics?
Politically, the Autumn Statement can be seen as yet another Sunak reset, following his conference speech, net zero U-turn and reshuffle in an ongoing bid to transform his fortunes.
The narrative of economic transformation and a success – at last – at achieving one of his five pledges means his MPs who remain loyal now have something to sell.
Whether it will be enough to impede Keir Starmer’s now heavily embedded poll lead – and whether the public and those less loyal members are buying – is another question altogether.