Sector Insights | 26th November 2023
Orca’s Autumn Statement review
Jeremy Hunt delivered his Autumn Statement and an updated OBR forecast last week.
Whilst the “pre Statement” speculation was centred around possible Inheritance Tax and Stamp Duty Land Tax (SDLT) cuts, these didn’t materialise. Instead, the two headline policies were the reduction in employees’ and self-employed national insurance by 2% from January and the making of “full expensing”, where businesses can write off investment expenditure in year of purchase, permanent.
His starting point was favourable, the £20BN additional “headroom” since the spring budget, caused in part by wage inflation and more people being dragged into the higher rate income tax bracket. However, despite these two headlining policies, the tax burden is still set for a record high, measured by taxation as a percentage of the economy, with the health and social care levy, increases in corporation tax and freezing of income tax thresholds, doing the work for the Chancellor.
A key point is that there is no direct benefit to employers from the NI cut, which all goes to employees and the self-employed. Given the increase in national living wage (NLW), many businesses may feel aggrieved and feel a fairer policy would have been to share the cut across both employees’ and employers’ NI. The NLW increase, announced the day before the Autumn Statement, has implications on employers beyond just the lowest paid. Any responsible employer has to at least review all wages, not just the lowest paid, or else risk employee unrest.
The property sector will have been disappointed that SDLT was left unchanged and, with the exception of an extension to the mortgage guarantee scheme, there was nothing in the Statement for the sector.
The overall focus of the Statement was on growth, the Chancellor referring to this more than 20 times in his speech and how productivity is central to this, but despite the policies announced last week, the all important OBR have reduced their five year growth average down from 1.6% to 1.3% per year. The Government is taking credit for the halving of inflation though other factors are at play. Inflation is a relative figure and after a period of high inflation, the rate will naturally drop as prices don’t rise at the same rate forever.
The market reaction to the Statement was muted with the pound fallings against the dollar and euro, and shares in blue chip stocks staying in negative territory (though pub shares did rise on the news of an alcohol duty freeze until August 2024).
This was an Autumn Statement with inflation in the rear-view mirror and a general election ahead. The early introduction of the NI reductions in January (and not waiting for the new tax year) was unusual and possibly points to a May general election, though forecasting anything nowadays is increasingly difficult. As Harold McMillan once said, a week is a long time in politics………
