U.K. Finance Minister Jeremy Hunt delivered his Autumn Statement budget announcements on Wednesday, announcing a cut to employee National Insurance from 12% to 10% for 27 million workers.
Among the other announcements were changes to benefits programs, a freeze on alcohol duty, additional business tax breaks, investment in AI and manufacturing, and a rise in the minimum wage.
The independent Office for Budget Responsibility sharply downgraded its growth forecasts on Wednesday and upped its inflation projections, highlighting the struggles facing the country as household finances remain stretched by a prolonged period of high inflation and sluggish growth.
Headline inflation came in at an annual 4.6% in October, its lowest reading in two years and sharply lower than the 11.1% rate when Hunt took over the country's finances in October 2022. However, it remains well above the Bank of England's 2% target and continues to weigh on household finances.
OBR growth and inflation forecasts paint a much bleaker picture
The OBR's growth and inflation forecasts on Wednesday presented a much bleaker picture than prior projections laid out in March.
Back then, the OBR said inflation would fall to 0.9% by the end of 2024, but on Wednesday revised that upwards to 2.8%. The consumer price index is not expected to hit the Bank of England's 2% target until 2025, meaning rates will likely stay "higher for longer" even as growth stutters.
Growth forecasts were also downgraded sharply to 0.6% this year and 0.7% next year, from the 1.8% and 2.5% predicted in March.
"It is clear that interest rates are weighing on the wider economy and making up for these periods of lost growth will be difficult for the U.K. despite the government's best intentions," said Lindsay James, investment strategist at Quilter Investors.
"This was billed as an 'Autumn Statement for growth' and the government is attempting to give the economy a shot in the arm, but it is questionable how effective and long lasting this growth will be."
With an election slated for some time in 2024 and the Conservatives trailing heavily in the polls, James said Wednesday's statement was "much more political in nature."
"The giveaways announced today are somewhat of a gamble by the government given the state of play with price rises and economic growth. Inflation is still running at more than double the Bank of England's target it could be there is even less headroom for giveaways in the Spring," she said.
"As a result, today's decisions are being driven much more by the polls than any fundamental improvement in the state of the UK's long-term finances."
- Elliot Smith
Labour's shadow chancellor highlights impact of existing tax increases
Beginning her response, the main opposition Labour Party's Shadow Chancellor Rachel Reeves says the impact of previous income tax freezes eclipses Wednesday's National Insurance cut.
"The government had already put in place tax increases worth the equivalent of a 10p increase in National Insurance, so today's 2p cut will not remotely compensate for the tax increases already put in place by this Conservative government," she says.
"The fact is that taxes will be higher at the next election than they were at the last. This is the legacy of the Conservatives."
National Insurance cut from 12% to 10%
Hunt announces that employee National Insurance will be cut from 12% to 10% from Jan. 6.
"If we want people to get up early in the morning, if we want them to work nights, if we want an economy where people go the extra mile and work hard, then we need to recognize that their hard work benefits us all," he says.
"That change will help 27 million people. It means someone on the average salary of £35,000 will save over £450."
The "class 2" NI charge for self-employed people who earn more than £12,570 will be scrapped, saving the average self-employed person £192 per year.
Business tax break becomes permanent
Hunt confirms that the "full expensing" tax break for businesses will become permanent.
Businesses can claim back 25 pence in corporation tax for every £1 they invest in IT, machinery and equipment, a measure that will cost the Treasury £11 billion a year. Hunt said it represents the "largest business tax cut in modern British history."
Hunt confirms £4.5 billion for British manufacturing
Hunt confirms the pre-announced £4.5 billion in funding for British manufacturing to boost investment in eight sectors across the U.K., available for a five-year period from 2025.
Announced by the Treasury last week, this includes £960 million for clean energy, over £2 billion for the automotive industry, £975 million for aerospace and £520 million for life sciences manufacturing.
The entire manufacturing sector makes up over 43% of all U.K. exports and employs around 2.6 million people, and Finance Minister Jeremy Hunt said the government was targeting funding to "support the sectors where the U.K. is or could be world-leading."
"Our £4.5 billion of funding will leverage many times that from the private sector, and in turn will grow our economy, creating more skilled, higher-paid jobs in new industries that will be built to last," Hunt said in a statement.
- Elliot Smith
Hunt: Government to invest £500 million in AI
Hunt promises an additional £500 million investment in artificial intelligence.
"When it comes to tech, we know that AI will be at the heart of any future growth. I want to make sure our universities, scientists and startups can access the compute power they need," he says.
"So building on the success of the supercomputing centers in Edinburgh and Bristol, I'll invest £500 million over the next two years to fund further innovation centers to help make us an AI powerhouse."
UK economy forecast to grow by 0.6% this year and 0.7% next year
The OBR forecasts that the U.K. economy will grow by 0.6% this year and 0.7% next year, Hunt reveals.
GDP is then set to expand by 1.4% in 2025, 1.9% in 2026 and 2% in 2027.
This marks a sharp downgrade for 2024 and 2025, where growth was projected at 1.8% and 2.5%, respectively, in the OBR's spring forecasts.
Alcohol duty frozen, tobacco duty to rise
Alcohol duty will be frozen until August 1, 2024, Hunt confirms, while duty on hand-rolling tobacco will rise by an additional 10%.
UK needs a 'more productive state, not a bigger state': Hunt
Hunt says the U.K. needs a "more productive state, not a bigger state," setting a new public sector productivity growth target of 0.5% per year.
This follows an