THE Autumn Statement was in sharp contrast to the big fiscal statements of Rishi Sunak’s era as chancellor. During Covid, Sunak was throwing money around like a drunken sailor as he sought to mitigate the impact of the pandemic on households, businesses and the health service.
But there was no such largesse from Jeremy Hunt, albeit he did change his tact from his previous fiscal statements by turning from tax grabber to tax cutter.
Indeed, this autumn statement was likely to be of more interest to politicos than economists. Much of it was to do with either currying favour with voters, particularly in marginal seats, or setting fiscal traps for the next government. There were some headline-grabbing measures, such as the two percentage points cut in national insurance, interestingly coming into effect in January rather than April. Spring general election anyone?
But the big picture, from an economist’s perspective, was relatively modest tax cuts in monetary terms, which have been dwarfed by stealth taxes already in play. We’ll likely not hear as much in the headlines about the latter.
The current government is presiding over the largest cumulative tax rises of any political party since the 1950s. Despite these cuts, the UK is still set to record its highest tax burden in 70 years in a few years’ time. So the tax cuts announced today were really just a veneer being sprayed over this track record ahead of the general election.
However, one of the Tory chancellor’s unofficial objectives ahead of voters going to the polls was to avoid a recession by boosting household spending by giving back some of the huge tax increases that have occurred from the multi-year freezing of tax thresholds which are incidentally still going to be frozen to 2028. He was effectively returning some of the spoils he received from inflation being so high and pushing more and more individuals into paying more tax.
Benefits will also be uprated by September’s inflation rate of 6.7% which will boost incomes from April, whereas those in receipt of the state pension will receive one of the largest increases on record of 8.5% next April. The chancellor will hope these cash injections will boost consumer spending in the near term.
The other big objective was to shape the battlefield for the general election with emotive tax cuts to put Labour on the back foot. One of the expected cuts was to inheritance tax. But while this didn’t come today, the smart money would be on it being announced in the spring. For now, businesses will welcome the fact that full expensing, which was previously only temporary, has been made permanent. This is a significant tax benefit for businesses, but it is a significant cost for the next government to keep permanent.
The chancellor is therefore reducing taxes in a way that is only sustainable in the short-term, meaning that the next government will have to act on them. They are effectively writing cheques that the next government will have to cash.
We already know how threadbare public budgets are and there was nothing on the spending side to give them a boost. And public sector pay pressures and threats of strike action remain. Whoever wins the next general election will inherit a high debt, high tax, and stagnant/low growth economy. Writing this on a post-it would probably trump Liam Byrne’s ‘we’ve spent all the money’ note.
It’s hard to avoid the conclusion that this was an underwhelming autumn statement for the UK. From a Northern Ireland perspective, it’s hard to imagine how it could be more underwhelming. Most of the measures such as on business rates relief for the retail and hospitality sectors and increasing housing allowance for people in the rental sector don’t apply here as they aren’t devolved. And clearly these aren’t decisions that can currently be taken here due to the lack of an Executive.
The only mention of Northern Ireland in the chancellor’s speech was an allocation of £3m in the Levelling Up fund to tackle paramilitarism. The Treasury says NI will get total additional funding of £185m this year and next as a result of the autumn statement but at least some, if not all of this will go towards repaying Stormont’s overspend from last year.
The chancellor talked about his 110 growth measures, but cynics would say that economic growth ain't one. Indeed, the OBR lowered its economic growth forecast relative to March but still remains much more optimistic than the Bank of England. It’s worth remembering that whilst today focused on fiscal policy, i.e. tax and spend, monetary policy in the form of higher interest rates is the biggest show in town. Whilst some will benefit from a reduction in tax of a few hundred pounds per year, many will see their mortgage payments rise by that amount each month.
Jeremy Hunt will likely get one more fiscal event ahead of the general election, where more tax cuts are expected to be deployed.
:: Richard Ramsey is Northern Ireland chief economist at Ulster Bank
