Alexander Anderson is a first year student at the School of European Languages and Culture. He interned at The Telegraph
Introduction
The UK economy has faced considerable challenges in recent years from Brexit in 2016, COVID-19 from 2019 to Liz Truss’ Mini budget in 2022. While various issues, both foreign and domestic, have dominated the headlines recently, Rishi Sunak’s three priorities have remained unchanged since last January (Parliament. House of Commons, 2023):
halve inflation
grow the economy
reduce debt
On the 22nd of November 2023, Jeremy Hunt, Chancellor of the Exchequer, presented the Government’s vision for the Economy. Given recent calls by the PM for a General Election in the second-half of 2024 (Geiger and Zeffman, 2024), this vision will likely influence individuals and business across the UK for the next 6 months at the least. The Government has presented in the Statement 5 new ‘focus’ areas: “reducing debt; cutting tax and rewarding hard work; backing British business; building domestic and sustainable energy; and delivering world-class education.” (Parliament. House of Commons. 2023). The first three areas (as the latter two are absent in the Statement) will be analysed and their effect on individuals or business shown, after a brief analysis of the Government’s progress with their current priorities
Accomplishing Current Targets
It is evident that priorities set for national debt and economic growth are vague, enabling the Government more flexibility in terms of when to meet these goals or how exactly to define them beyond the convenient soundbites. Despite being the most concrete goal for the Government and lauded in the Autumn Budget’s Executive Summary as having been met (Parliament. House of Commons, 2023), inflation is still twice (4.6% as of October 2023 per ONS, 2023) that of the Bank of England’s 2% inflation target (Bank of England, 2023). Rishi Sunak has also failed to grow the economy since January, as ONS Q3 (July to September) figures show that the economy has been falling below estimates, with GDP contracting by 0.1% instead of facing no growth as estimated in November. Meanwhile, the Autumn Budget seems to put trust in estimates, by spotlighting forecasts, which imply economic growth in the next few years
The ONS and OBR (Office for Budget Responsibility have already significantly changed their forecast with inflation (as measured using CPI) only falling to target levels (~2%) in 2025 as opposed to 2024 according to the March 2023 Forecast (Office for Budget Responsibility, 2023).
Therefore, it is clear that the Government has not met its current targets through its current policies. The Autumn Statement is attempting to change that, for example the OBR has stated in the statement (Parliament. House of Commons, 2023) that the policies and decisions presented will reduce inflation in 2024 and boost investment.
Reducing Debt
This objective appears to be easily justified; the UK spends 4% of its GDP on interest rates each year (Portes, 2023). This is twice as much as defence and just 1% less than that spent on government (Institute for Fiscal Studies, 2023). The Government mentions an inspiring OBR forecast, predicting debt, as a proportion of GDP, lowering every year. (Parliament. House of Commons, 2023)
Throughout the statement, the Government assures that public expenditure, among others on education and the NHS, will increase and will not be affected by this aim. Examples given, include the highest real (adjusted for inflation) spending on education in 2024-2025 under current spending plans as well as overseas aid to Ukraine and recently Palestine (Parliament. House of Commons, 2023)
In his article for the Institute for Government, Hoddinott (2023) argues that the Autumn Statement will leave several key services, already understaffed, underfunded until 2028. Most critically affected services include Prisons (facing a cut of 6.7%) and Courts (-5.6%).
An article for the Open Data Institute, Miller (2020) argues that the 0.5% allocated to overseas aid is woefully insufficient - this was in response to the cut to overseas aid from 0.7% of GDP to 0.5% in 2020, which is continued under last year’s statement. Given the problems with inflation caused by the increases in global food prices faced by many developing countries around the world, the lack in aid increases to the target 0.7% will undermine the image of a ‘Global Britain’.
The statement moves on to provide the Government’s solutions to reduce debt. The first of these is ‘improving public sector productivity’. One of the areas, where the Government seeks to increase productivity is the Police, where a recent Policing Productivity Review proposes a series of changes, including cutting bureaucracy as well as adopting new technology. In the NHS, the Government is seeking to implement new training methods, a larger community workforce and identity administrative tasks, where AI can replace workers. These area, however, have a key assumption underpining them- a 1.5%-2% per annum growth in labour productivity (Parliament. House of Commons, 2023). Bearing in mind headlines touting the UK’s so-called “Productivity Problem”, this is a rather significant assumption. The UK has lagged behind its fellow European economies as well as the US. There was a brief period of the UK overtaking France and Germany around the turn of the century, but that momentum has since been lost (The Economist, 2022). Therefore, it is clear that the evidence presented shows that the public sector, include the already underfunded justice system as well as the NHS could be negatively impacted by this aim.
Cutting Taxes and Rewarding Hard Work
Foremost, the Government is planning to increase HMRC’s “ability to support ability to support individuals and businesses who are unable to pay their tax debts” and only targeting those that can afford to pay. The second group to receive increased support are those that are unable to work due to a long-term illness or disability. Other vulnerable groups will continue receiving Cost of Living Payments.
Under this aim, the Government will reduce taxes, which according to the OBR’s 2023 Outlook (Office for Budget Responsibility, 2023), will enable 28,000 to return to employment by 2028-9. National Insurance Contributions (NICs) will fall and for many public sector workers, this will constitute a gain between £520-£750 per annum for the average worker (Parliament. House of Commons, 2023). NICs for the self-employed will also fall from 9% to 8%.
The other side of the aim is to increase incentives for work. One such incentive is the 9.8% increase for the National Living Wage (NLW) and lowering the age threshold to 21 years old. However, according to the statement, the NLW will be the same amount in real terms as 2020/21 (Parliament. House of Commons, 2023). The Government aims to facilitate parental employment by significantly increasing free childcare for eligible working parents in England, providing 30 hours per week for 38 weeks annually from the child's 9 months to school entry. Additionally, measures include extending working lives by enhancing digital midlife MOT services, removing Lifetime Allowance charges, and addressing health-related barriers through employment support in mental health and musculoskeletal services. There's a focus on increasing work coach support, strengthening sanctions, and expanding job center support.
There is also an introduction of punishment measures for UC claimants, forcing them to work within sixth months or lose access to free prescriptions and legal aid.
Backing British Business
Like any Conservative government before it, the Autumn Statement also includes prominent support for the private sector. involves removing barriers to investment and cutting taxes for businesses. Acknowledging a lower business investment rate compared to other advanced economies, the government introduces measures such as simplifying and improving R&D tax reliefs, allocating £280 million annually to drive innovation in the UK. Barriers to investment in critical infrastructure are being addressed through reforms in the planning system to expedite approvals and reduce the time for new projects to connect to the grid. A business rates support package of £4.3 billion over next five years is introduced, including a freeze on the small business multiplier and an extension of relief for vulnerable businesses. Targeted support is announced for digital technology, green industries, life sciences, advanced manufacturing, and creative industries. £4.5 billion is allocated to strategic manufacturing sectors. Investment zones are confirmed in Greater Manchester, the West Midlands, and the East Midlands. The funding for each investment zone is doubled, potentially raising business investment by around £20 billion per year in a decade (Parliament. House of Commons, 2023).
There are a number of issues that arise from these policies. Foremost, a survey cited in RJP LLP (2023) stated that over half of Small to Medium Enterprises (SMEs) were against a R&D tax reform introduced in the Spring Budget that merged tax credits to larger firms as well as SME. This means that the £280 million annually will be spread across too many firms to make a large impact on individual firms and will mostly cover miscellaneous costs occurring with R&D, such as administration, legal fees and salaries. While investment zones might help reduce regional inequality, the regions most affect by inequality. As according to the ONS (2021), the lowest income areas are in the Midlands, North West, North East, Yorkshire, and the Humber. The Statement only is targeting Manchester (not Birmingham, which has a similar income level and has twice the population) and the the Midlands. Furthermore, this would only mitigate the impacts of inequality in the local areas, which might not be as effective as many companies would not feel incentivised to move to Manchester from London due to the international transport links and amount of other international firms based in London.
Conclusion
In conclusion, the Autumn Statement of 2023 articulates a set of pivotal economic policies aiming to address prevailing challenges. The government's commitment to halving inflation, fostering economic growth, and reducing debt reflects overarching priorities, yet scrutiny reveals notable criticisms.
The objective of reducing debt, crucial for fiscal sustainability, prompts concerns over potential implications for public services. Despite assurances, critical areas such as the justice system and healthcare face cuts, with skepticism surrounding the viability of assumed labor productivity growth.
Tax cuts and incentives for work intend to stimulate employment, yet critics question the broader impact on social support systems. The emphasis on a National Living Wage increase and childcare support attempts to balance, but doubts persist regarding tangible real-term benefits for individuals.
Supporting British business through targeted investments and incentives is a cornerstone, but concerns arise over the effectiveness of measures. The allocation of R&D tax reliefs, though significant, faces skepticism regarding equitable distribution among Small to Medium Enterprises, potentially diluting impact.
Regional imbalances persist, as specific investment zones may not comprehensively address broader inequality concerns. This targeted approach may overlook regions not directly benefiting, raising questions about the strategy's overall impact on national economic equity.
Comments