United Kingdom: Chancellor of the Exchequer delivers Autumn Statement
The economic framework
The independent Office for Budget Responsibility (OBR) forecasts positive growth over the next five years, reaching 0.6% in 2023, 0.7% in 2024 and 1.4% in 2025. The new forecasts show GDP exceeding its pre-Covid level by 1.8%. Inflation should continue to slow, reaching 3.6% in 2024 and 1.8% in 2025 after 7.5% in 2023. It would therefore return to the 2% target in 2025. The unemployment rate is expected to reach 4.6% in 2024 and 2025, compared with 4.2% in 2023. After peaking at 93.2% of GDP, public debt is expected to fall from 2027-28 by more than twice the margin expected in March. The Autumn Statement is part of the UK’s fiscal rules.
Purchasing power: new measures bringing total support for purchasing power to £104 billion over the period 2022-25, or £3,700 per household on average:
- 6.7% increase in welfare benefits (i.e. the rate of inflation measured in September) in April 2024 for people of working age.
- Increase in housing benefit to support tenants on low incomes.
- Freeze on alcohol tax until August 2024.
- Increase in basic pensions of 8.5% in April 2024.
Tax measures: at a time when the Prime Minister’s objective of halving inflation has been achieved and the debt is due to start falling, the government is implementing tax cuts to encourage people to work. These tax cuts will affect 29 million people.
- Reduction in social security contributions (National Insurance Contributions: Class 1) on employees from 12% to 10% from January 2024, i.e. an annual reduction of £450 for an employee earning an average of £35,400 a year.
- Reform and reduction in social security contributions (National Insurance Contributions: Classes 2 and 4) for the liberal professions and self-employed entrepreneurs, representing an annual reduction of £350 for an entrepreneur earning an average of £28,200 a year.
The measures for businesses are designed to stimulate investment and enable the UK to increase productivity through additional annual investment of £20 billion over the next ten years:
- The allowance for capital expenditure on factories, machinery and technology will be made permanent – a tax cut of up to 25 pence for every pound invested.
Extension of the 75% tax relief for businesses in the retail, hospitality and leisure sectors until 2025. - Reform of pension funds, in particular through a British Business Bank Growth Fund to provide £75 billion of finance for high-growth businesses by 2030, while allowing a pension supplement of £1,000 a year for someone who has saved since the age of 18.
- Stricter rules on payment times to support SMEs.
- Extension of the Climate Change Agreement Scheme to allow energy intensive businesses (steel, ceramics and breweries) to benefit from tax credits of £300 million each year until 2033 to encourage investment in energy efficiency and support the transition to carbon neutrality.
- Simplification of the research tax credit scheme from April 2024.
Work and the welfare system: the measures are aimed at better rewarding work and reforming the welfare system to increase the labour force and get people back to work. The OBR estimates that these measures will support a further 78,000 people between now and 2028-29, in addition to the 110,000 people who benefited from the budget announcements presented in March:
- Raising the minimum wage by 9.8% to £11.44 an hour in April, with the rise applying for the first time to people aged 21 and 22.
- The minimum wage will also rise sharply for young people and apprentices: +14.8% for 18-20 year olds and +21.2% for 16-17 year olds.
- Reform of back-to-work support mechanisms, particularly for people with health problems.
Infrastructure and economic regeneration: measures to support supply and funding for businesses and communities
- 4.5 billion will be dedicated to industry to enable new opportunities in sectors such as aerospace, zero-emission vehicles, life sciences, carbon capture and storage, electricity networks, hydrogen, nuclear and wind.
- Creating three new investment zones focused on advanced manufacturing sectors in England (Greater Manchester, West Midlands and East Midlands) to create jobs and upgrade the economy. These are expected to generate £3.4 billion of private investment and 65,000 skilled jobs over the next decade.
- A further £500 million will be allocated to supercomputers and innovation in artificial intelligence over the next two years.
- The government has published a plan to reduce delays in accessing the network. People living near new energy infrastructure will see their annual energy bills reduced by up to a thousand pounds.
- The government has agreed in principle to implement the main recommendations of Lord Harrington’s mission on foreign direct investment, including an increase in the resources of the Office for Investment.
You will find below:
The macroeconomic framework from the Office for Budget Responsibility: