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UK chancellor Jeremy Hunt has cut national insurance by 2 percentage points and made business investment tax relief permanent, as he put a £20bn tax giveaway at the heart of his Autumn Statement.
Hunt claimed the British economy was “back on track” and that his package of tax cuts would boost growth without imperilling the fight against inflation.
His package left space for further pre-election tax cuts in next spring’s Budget, but was dwarfed by the impact of the government’s decision to freeze tax thresholds at a time when inflation is still more than twice the Bank of England’s 2 per cent target.
“While personal and business tax cuts reduce the tax burden by half a percentage point, it still rises in each of the next five years to a postwar high of 38 per cent of gross domestic product,” said the independent Office for Budget Responsibility.
Rachel Reeves, shadow chancellor, accused the government of presiding over record tax rises because of such “fiscal drag”.
In a highly political statement, Hunt said he would cut the main rate of national insurance by 2 points to 10 per cent from January 6 — the start of what is expected to be an election year — with a cost of about £9bn.
The other big measure saw Hunt make permanent the “full expensing” capital allowance regime, at a cost rising to £11bn. He said it would give Britain “one of the most generous tax reliefs anywhere in the world”.
He also announced plans to sell the government’s entire holding in NatWest, the high street bank, by 2025-26 subject to market conditions. Referring to Thatcherite privatisations, he said it was “time to get Sid investing again”.
Hunt claimed that, with inflation falling to 4.6 per cent and with the OBR showing that debt was on a sustainable path, it was time to take the foot off the fiscal brake.
“Our plan for the British economy is working but the work is not done,” he said, as he set out 110 supply-side measures, intended to boost business, bring the sick back to work, and get more capital flowing into the economy.
In what he called “the largest business tax cut in modern British history”, Hunt confirmed the government would make permanent the “full expensing” regime for private sector investment.
The scheme, which was due to expire in 2026, allows a company to immediately deduct all of its spending on IT equipment, plant or machinery from taxable profits. Extending it was a priority for business groups.
The chancellor said the measures would increase business investment in the economy by about £20bn a year within a decade and was “a decisive step towards closing the productivity gap with other major economies”.
Hunt said the Office for Budget Responsibility considered that Wednesday’s measures would boost gross domestic product and push down inflation. He had previously warned that tax cuts now would fuel inflation.
He added that the OBR expected the economy to grow 0.6 per cent this year and 0.7 per cent next year. This compares with the OBR’s previous forecasts of a 0.2 per cent contraction this year and 1.8 per cent growth in 2024. The Bank of England expects growth to remain flat next year.
In its response, the OBR said the impact of the Autumn Statement measures on output growth were “modest”.
“The chancellor spends this windfall on cuts in national insurance contributions, permanent upfront tax write-offs for business investment, and a package of welfare reforms, which together provide a modest boost to output of 0.3 per cent in 5 years,” it said.
Financial markets’ response to the Autumn Statement was also muted. Gilt yields edged up from a five-month low, reflecting falling prices, after the Treasury announced a slightly smaller reduction in bond sales this year than analysts had expected.
Sterling fell 0.4 per cent against the US dollar. The FTSE 100 was down 0.2 per cent, roughly where it had traded before Hunt began speaking.
Referring to the government’s 38.6 per cent stake in NatWest, a legacy of the financial crisis, the Chancellor said he would “explore options for a NatWest retail share offer in the next 12 months”.
He said this was part of a broader push to “make sure the UK remains one of the most attractive places to start, grow and list a company”. The UK is seeking to stem the flow of British businesses listing in New York, lured by perceived higher valuations and a deeper pool of capital.
He said he would set a new target to keep public spending growth below overall economic growth “while always protecting services”.
The chancellor confirmed that the state pension would rise by 8.5 per cent in April, in what he termed “one of the largest ever cash increases” — and that universal credit and other benefits would increase by 6.7 per cent in line with September inflation, rather than the lower October level.
Hunt also promised measures “to unlock the building of more homes” in the UK, which has consistently fallen short on government house building targets.
These include a plan to refund planning fees if local authorities take too long to handle applications and £32mn to “bust the planning backlog”. Hunt also said that he would freeze duty on alcohol, a move applauded by the industry.
Additional reporting by Jim Pickard and Tommy Stubbington
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