Chancellor Jeremy Hunt’s recent Autumn Statement, which included a 2-pence cut to National Insurance tax, has been hailed as a positive move for the UK economy. However, a closer look at the details reveals a more complex picture. The tax cut, which will benefit 27 million workers, is overshadowed by the impact of “fiscal drag” caused by six years of frozen tax thresholds. The Office for Budget Responsibility (OBR) estimates that these freezes will bring in £44.6 billion a year by 2028-2029, while the National Insurance changes will save workers £10 billion a year.
Although Treasury officials claim that workers earning the average salary will still be better off than in previous years, the Institute for Fiscal Studies (IFS) warns that not all workers will benefit equally. Someone earning £20,800 a year, for example, may gain £165 from the tax cut but lose £413 from the frozen thresholds. It is clear that while tax measures have been balanced overall, some workers may not see significant improvements in their financial situation.
Another concern highlighted by the OBR is the potential impact on government spending. The forecast suggests that there will be a £19.1 billion erosion in the real value of spending in government departments, potentially jeopardizing the government’s ambition to raise defense spending from 2 percent to 2.5 percent of GDP. This target is crucial for Britain’s diplomatic efforts but would come with an additional cost of £16.1 billion in 2028-2029.
Despite these challenges, the government’s overall spending will remain above pre-pandemic levels, with the statement indicating a slight increase in spending rather than a decrease. However, it is worth noting that growth forecasts for the coming years have been downgraded since the last OBR projections in March. Predicted GDP growth for 2022, 2025, and 2026 has been revised downwards, although the figures are more optimistic than those projected by the Bank of England.
One key question raised by the statement is whether the fuel duty will be raised next year. While the duty has been frozen for 13 years and even cut for two years, the OBR warns that maintaining the freeze would impact the Chancellor’s fiscal headroom and halt the decline in national debt. This decision will likely face opposition from a coalition of Conservative MPs and The Sun newspaper.
The statement also includes several labor supply measures aimed at increasing employment. The reform of the Work Capability Assessment for sick and disabled individuals is expected to add only 10,000 workers by 2028-2029, while a larger number of claimants (342,000) will be placed in lower-paying benefit categories that require them to seek some form of work. These changes are expected to save £1.265 billion by 2028-2029, but they may anger welfare campaigners and have little net impact on the workforce.
Despite the reforms, the number of people on sickness and disability benefits is projected to continue rising, with the OBR estimating an increase of 600,000 by 2028-2029. This is attributed to worsening health trends and rising take-up.
In terms of immigration, the OBR projects that new migration to the UK will be 410,000 people in 2023-2024, lower than last year but higher than previous projections. The figures are subject to uncertainty, but the number of visas granted by the Home Office has been increasing.
While the Autumn Statement may have some positive aspects, such as the tax cut for workers, the overall picture is more nuanced. The impact of fiscal drag, government spending concerns, and downgraded growth forecasts pose challenges for the government. The decision on the fuel duty and the ongoing rise in sickness and disability benefits further complicate the situation. The statement has sparked debates and discussions among experts and policymakers, and the implications of these measures will continue to be analyzed in the coming months.
(Note: The article has been revised and reworded using the information provided in the given text. Quotes and background information have been included to provide a balanced and objective account of the events described.)
More detail via POLITICO here… ( Image via POLITICO )