Autumn statement live: Jeremy Hunt cuts national insurance as OBR downgrades UK growth forecast | Politics

Spread the love

Hunt announces 2 percentage point cut to national insurance, coming into effect from January, worth £450 for average worker

Hunt turns to tax cuts.

He says he promised to only cut taxes when that was affordable, and possible without putting up inflation.

Today the OBR says that is possible, he says.

High taxes disencourage work, he adds, and taking into account national insurance, people pay a 32% marginal tax rate.

National insurance will be cut, he announces.

He is going to cut the main rate for employee national insurance from 12% to 10%. He says 27 million people will benefit.

He says that is worth £450 for someone on average earnings.

Hunt says normally this could come in at the start of the tax year, in April. But instead he will introduce emergency legislation to bring this in from 6 January.

He says the OBR says this will lead to the workforce going up by 94,000.

The Treasury says:

From January employee national insurance contributions will drop from 12% to 10%.

That’s a £450 tax cut for the average worker earning £35,400.

Helping people keep more of the money they earn & making work pay.

Part of our plan to grow the economy.

Key events

Hunt accused of prioritising pints over childcare

Alexandra Topping

Alexandra Topping

The rabbit out of the hat in the last budget was the surprise announcement of a £4bn funding boost to fund subsidised childcare for parents struggling to pay some of the highest costs in the OECD.

But today, early years providers said today’s budget “prioritised pints over childcare” – referencing the fact that pubs and other smaller hospitality, leisure and retail businesses were given a tax break, but not 60,000 early years providers – and undermined the stability of the sector.

Sarah Ronan, director of the Early Education and Childcare Coalition, said the uplift in the minimum wage was welcome for low-paid staff in the sector but would endanger providers unless the hourly rate they are paid by the government to provide “free” childcare hours to parents were significantly increased.

Ronan said:

“Failing to do that is placing providers in a perilous financial position and is likely to lead to more closures at a time when the government should be shoring up the sector,”

Joeli Brearley, CEO of the campaign group Pregnant Then Screwed, said:

“The irony of an autumn statement on Equal Pay Day which prioritises pints over childcare was not lost on us. The government clearly thinks the crumbs they offered parents during the Spring Statement is enough – it is not.

Unfortunately, we won’t see the impact until April when parents struggle to access the childcare funding they were promised, because there are no places available.“

OBR says almost half of Hunt’s autumn statement ‘headroom’ explained by fuel duty rise that’s unlikely to happen

The autumn statement assumes that, at the end of the forecast period (2028-29), the Treasury will have “headroom” (spare cash) worth £13bn, or 0.4% of GDP. Jeremy Hunt boasted about this in his speech, saying:

We therefore meet our fiscal rule to have underlying debt falling as a percentage of GDP in the final year of the forecast, with double the headroom compared to the OBR’s March forecast.

But the OBR in its report says that almost half of this “headroom” is explained by a forecast rise in fuel duty that will probably never happen.

It also suggests that £13bn is not much to boast about anyway and that, without the proposed spending cuts deemed unrealistic (see 3.02pm), Hunt would not have any headroom at all. It says:

Headroom of £13bn is considerably lower than the average of £29.7bn that chancellors have held against their fiscal rules since 2010. Our forecast again incorporates £6.2bn of extra revenue in 2028-29 from the government’s stated policy of increasing fuel duty rates in line with RPI inflation and the reversal of the ‘temporary’ 5p cut. If, like all chancellors since 2011, rates are instead held at the current rate then more than 43% of the headroom in 2028-29 would be removed and debt would no longer be falling in 2027-28. The current headroom is also less than it would have cost to maintain the real value of departmental spending at the same level as in our March forecast.

Rob Davies

Rob Davies

The alcohol and pubs industries have toasted measures in the autumn statement aimed at providing some relief to the struggling sector.

The chancellor, Jeremy Hunt, froze alcohol duty and extended 75% business rates relief for hospitality and leisure firms, prolonging a measure initially introduced to help an industry that was hit harder than most by social distancing and lockdowns during the pandemic.

The tax break was due to end on 1 August, fuelling fears of a sudden increase in costs that would have been nearly £13,000 a year for the average pub against a backdrop of rising closure rates. Relief will now last for another year.

Hunt also froze the small business rates multiplier, the methodology used to calculate bills for the tax.

The British Beer & Pubs Association said the measures would save the sector £350m a year, while the Wine & Spirits Trade Association called the duty freeze in particular a “huge relief”.

Nick Mackenzie, chief executive of pubs and brewing company Greene King, said the measures would “help provide vital respite’ to pubs struggling with high costs in other areas.

However, he and others in the pub industry highlighted concerns about rising staff costs and the ongoing pain caused by inflation.

Jeremy Hunt has handed “implausible plans to cut public spending” (see earlier post) to the winner of the next election, says the Resolution Foundation.

In their rapid analysis of the autumn statement, Resolution say that pre-election giveaways have arrived early with the biggest tax cuts since 1988 (if you ignore Liz Truss’s proposals, which were largely abandoned).

But even so, tax as a share of GDP is still set to rise by 4.5 percentage points (or £4,300 per household) between 2019-20 and 2028-29, they calculate.

Torsten Bell, chief executive at the Resolution Foundation, said:

“Today the chancellor used an inflation-driven surge in tax receipts to go early on pre-election giveaways – announcing the biggest package of tax cuts since 1988. In doing so, the chancellor has rightly prioritised workers’ earnings and firms’ investment plans. Raising the local housing allowance will also help 1.6 million households struggling with surging rents.

“But the truth is taxes are up not down. Today’s cuts are dwarfed by tax rises already under way. By the end of this decade taxes are set to be up by the equivalent of £4,300 per household compared to 2019.

“Worse, the giveaways announced today are funded by handing whoever wins the next election implausibly large spending cuts. Tax cuts to boost business investment are welcome, but undermined by plans to cut public investment by over a third – it’s hard to think of a more anti-growth policy.”

Growth in take-up of electric cars slashed

Gwyn Topham

Gwyn Topham

The OBR has radically reduced its expectations for the take-up of electric vehicles in the UK over the next seven years, and warned that the government’s decision to delay the ban on new petrol and diesel car sales from 2030 to 2035 may dissuade car buyers to go electric.

The OBR also points to the increased cost of financing purchases and the smaller difference in EV running costs compared with fossil fuel cars.

Its latest forecast says just 38% of new vehicles sold in the UK in 2027 will be electric, down from the 67% it forecast in March.

Growth in EV sales has already slowed, partly due to higher electricity prices and lower pump prices for petrol cars, as well as higher interest rates.

The OBR now expects uptake to track the ZEV mandate, which forces manufacturers to sell a certain proportion of zero-emission vehicles, rising to 80% in 2030.

The prolonged used of dirtier cars will bring in slightly more fuel duty to the government – an average £700m extra a year on the new forecast.

Julia Kollewe

Julia Kollewe

Hunt today pledged £520m for “transformational manufacturing investments” in the life sciences sector from 2025-26.

Two research & development tax relief schemes will be merged next April to simplify the system, and within this the rate at which lossmaking companies get taxed will be reduced from 25% to 19% .

This was welcomed by businesses, although subcontractors hiring R&D staff could lose out.

James Sheppard, UK & Ireland managing director at the lab and office provider Kadans Science Partner, said:

“We welcome the announcement from the chancellor that the government plans to progress its proposed Mansion House Reforms to pension funds announced earlier this year hoping to unlock £25bn for innovative companies in the UK by 2030. The historic lack of investment in life sciences infrastructure in the UK has meant that the industry hasn’t been sufficiently supported to reach its growth potential.

These new measures, including further tax reform for loss making SMEs, are a welcome step-change if the UK is to reach its goal of becoming a life sciences superpower.

IFS: this is not a recipe for good management of the public finances

Paul Johnson, the director of the IFS, has just issued his early analysis of the autumn statement.

Johnson starts by “getting a few things straight”:

The public finances haven’t meaningfully improved. The growth outlook has weakened. Inflation is expected to stay higher for longer.

Higher inflation pushes up tax receipts by more than it pushes up spending on debt interest or social security benefits; but rather than use the proceeds to ease the ongoing ‘fiscal drag’ effects of threshold freezes, or to compensate public services for higher costs, the chancellor opted to cut other taxes.

His immediate cut to national insurance will put more money into workers’ pockets when it comes in but won’t be enough to prevent this from being the biggest tax-raising parliament in modern times.

Johnson then warns that announcing immediate and certain tax cuts in response to highly uncertain changes in assumptions about the UK’s medium-term economic prospects is “does not feel like a recipe for good management of the public finances”.

He says:

His [the chancellor’s] so called “headroom” against a rather loose fiscal target is minuscule and the OBR could easily take it away in the Spring Budget with some very small changes to forecasts. What will he do then?

Certainly, whoever is Chancellor after the next general election is going to have very little room for manoeuvre.

Having said all that, Johnson concludes, Hunt has chosen a “pretty sensible set of taxes to cut”.

Making full expensing permanent rather than temporary is welcome.

Cutting rates of national insurance is preferable to cutting rates of income tax and may help boost employment. But these tax cuts have been ‘paid for’, in effect, by letting fiscal drag become even more of a tax rise than previously expected and through a bigger squeeze on the real-terms value of public service budgets and an even bigger squeeze on public investment, which is frozen in cash terms.

There’s a material risk that those plans prove undeliverable and today’s tax cuts will not prove to be sustainable.”

Labour says Hunt’s NI cut will ‘not remotely’ compensate for Tory tax increases – video

Home secretary described Stockton as ‘shithole’ during PMQs, MP claims

The Labour MP Alex Cunningham has claimed that his constituency was described as a “shithole” by the home secretary, James Cleverly, during prime minister’s questions. Ben Quinn has the story.

Lib Dems claim fiscal drag ‘stealth tax’ makes autumn statement a ‘Hunt hoax’

The Liberal Democrats have described the autumn statement as a “Hunt hoax”. In a statement, Ed Davey said the government was implementing a £200bn stealth tax raid and he said the amount people would gain from the national insurance cut announced today would not compensate for the extra tax they were paying because of allowances and thresholds being frozen. Davey said:

This autumn statement was a Hunt hoax. Buried in the small print is a massive stealth tax raid that will drag millions into paying a higher rate in the coming years.

The British people will rightly be furious at this deception, as they are forced to pay the price for Conservative chaos through years of unfair tax hikes.

It is high time that this Conservative government came clean about just how much money they are taking out of hard-working families’ pockets.

The Lib Dems says that, even after the national insurance cut announced today, someone earning £35,000 a year will still be paying an extra £400 in tax in 2024-25. And a higher rate taxpayer will still be paying an extra £1,200 a year, the Lib Dems says.

To justify calling it a £200bn stealth tax, the Lib Dems aren’t looking at the extra revenue raised annually (the standard methodology), but are instead adding together all the annual figures for stealth tax revenue in the chart published by the OBR. See 2.30pm.

UK still facing largest fall in real living standards since records began in the 1950s

Living standards are still heading for the worst fall in at least seven decades, despite the cut to national insurance rates announced today, the Office for Budget Responsibility says.

Living standards, as measured by real household disposable income (RHDI) per person, are forecast to be 3.5% lower in 2024-25 than their pre-pandemic level.

While this is half the peak-to-trough fall the fiscal watchdog expected in March, it still represents the largest reduction in real living standards since ONS records began in the 1950s.

The OBR explains:

RHDI per person recovers its pre-pandemic level in 2027-28, something not achieved in our March forecast, as resilient labour incomes begin to steadily outmatch slowing inflation.

We estimate that the reduction in the rate of NICs announced in the autumn statement will boost real household incomes by around 0.5% at the end of the forecast.

Resolution Foundation’s Torsten Bell says Conservative MPs should be worried….

The chart I’d be most worried about as a Tory MP? The disaster of what’s happened to household incomes: 3.5% fall between the last election and the coming one is the largest reduction in real living standards since ONS records began in the 1950s

— Torsten Bell (@TorstenBell) November 22, 2023

Q: How responsible was it of Jeremy Hunt to spend the windfall from higher inflation [which has lifted tax revenues]?

OBR chief Richard Hughes points out that the chancellor’s headroom to avoid breaching his fiscal rule [to have public sector net debt falling at the end of the forecast horizon] has risen to £13bn, from £6.5bn in March.

But, that’s partly because the target has now moved forward a year, to 2028-29.

Overall, Hughes says, the health of the public finances are broadly unchanged compared with March.

Q: With the UK’s national debt nearly 100% of GDP, could it cope with another crisis such as the Covid-19 pandemic?

OBR chief Richard Hughes tells today’s press conference that it all depends how interest rates reacted to a crisis – that would determine the government’s room for manoeuvre.

Hughes explains that when shocks hit everybody, rates on government borrowing tend to fall, which gives ministers some space to fund stimulus measures.

A worry would be a crisis that pushed up interest rates – such as one which resulted in higher energy costs, as that is inflationary.

Source link