Written by Dominic Williams
Jeremy Hunt’s ‘Autumn Statement for Growth’ marked a departure from his March Budget, which lacked significant tax cuts, featured numerous spending promises, and produced a projection from the Office of Budget Responsibility (OBR) that foresaw a public spending to GDP ratio of 43.4 per cent, the highest since the 70s. The Autumn Statement, in contrast, introduced £20bn in tax cuts. Approximately half of this sum resulted from a surprise announcement, reducing employee National Insurance contributions by 2 percentage points, and simplifying self-employed contributions. This move is anticipated to put £450 back into the pockets of the average worker annually.
One notable announcement is the introduction of ‘full expensing,’ enabling businesses to immediately and fully offset capital investments against corporation tax. This is expected to provide a substantial incentive for businesses, fostering increased productivity, economic growth and, subsequently, higher wages. Notably, this tax cut positions the UK with the lowest headline corporation tax rate in the G7.
However, while a National Insurance cut benefits workers, Rishi Sunak’s decision to freeze personal tax thresholds has pulled millions of workers into higher tax brackets. Consequently, the overall tax burden is still projected to reach a post-war high by 2027-28.
Figures released last week indicated a sharp rise in UK consumer confidence between October and November. The GfK Consumer Confidence Index, that measures people’s views on personal finances and broader economic prospects, suggests an optimistic outlook. This has led to increased expectations that the Bank of England will maintain current rates at 5.25 per cent for a longer period than initially anticipated. This sentiment aligns with the recent statement from Andrew Bailey, Governor of the Bank of England, emphasising it’s ‘far too early’ for interest rate cuts. Bailey also cautioned that more efforts are required to bring down inflation to its target rate of 2 per cent, despite the sharp decline in the annual inflation rate.
Looking beyond the UK, the latest Federal Reserve meeting minutes reveal no indication of potential rate cuts on the horizon. Jerome Powell, the Chair, emphasised that the Banks primary focus remains on assessing whether further rate hikes are necessary.
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