The Chancellor of the Exchequer, Jeremy Hunt, has this morning delivered his Autumn Statement to Members of Parliament in the House of Commons declaring the Government’s priorities are stability, growth and public services. Below, we set out a summary of the announcements as well as some political context and analysis of the address.  

Key highlights include:

• The tax burden will rise to the highest proportion of GDP since WWII at 37.1% in 2027-28. Windfall taxes will raise £14 billion, including a new temporary 45% levy on electricity producers. The threshold for the top rate of income tax has been cut from £150,000 to £125,140, bringing hundreds of thousands of workers into the highest tax band.
• The NHS budget will be increased by £3.3 billion in 2023-24 and a further £3.3 billion in 2024-25. Adult social care will receive an additional grant funding of £1 billion in England in 2023-24 and £1.7 billion in 2024-25. The Government’s social care charging reforms will be delayed for two years, and local authorities have been given more flexibility over council tax to raise core council tax by 3% without a referendum, with the social care precept limit rising to 2%.
  
• The cap on energy bills will continue for a further 12 months but will rise from £2,500 to £3,000. An extra £900 of energy bills support will be provided to households on means-tested benefits, £300 more will be given to pensioners and £150 will be given to those on disability benefits.
  
• The school’s budget has received an extra £2.3bn per year until 2024. Sir Michael Barber is leading a review into skills reform and the R&D budget has been protected. R&D spending will increase to £20billion a year by 2024-25, an increase of a third compared to 2021-22.
  
• The Government will proceed with major infrastructure projects including building a new nuclear plant at Sizewell C, the HS2 rail link, Northern Powerhouse Rail and the rollout of full-fibre broadband.

Other links

• The Treasury Press release can be found here.   
• The Autumn Statement document can be found here. 
• The Chancellor’s speech can be found here. 
• The Shadow Chancellor’s response to the Autumn Statement can be found here.  

Overview and background

The long-awaited Autumn Statement, which was delayed by three weeks, outlines the Government’s medium-term fiscal plan to put public spending on a sustainable footing and restore stability. Jeremy Hunt’s statement today returns the party to the centre ground and is possibly the most important fiscal event since the 2010 austerity Budget announced by George Osborne. Notably, it is in stark contrast to the mini budget announced by Kwasi Kwarteng only two months ago. 

The statement is intrinsically linked with the new Prime Minister and is a make-or-break moment for his leadership. It has the potential to provide the country with fiscal stability and renewed trust or topple the Government into disarray and further crush the Conservative’s hope in the next general election. Downing Street prepared the country for a set of bleak announcements and have delivered a statement that is clearly intended to maintain balance in the financial markets which have so far reacted relatively positively with the price of the sterling and gilts remaining relatively stable.  

The statement comes a day after inflation hit a new 41-year high of 11.1% and as households across the country struggle to pay their rising costs, plunging thousands into financial misery. The Bank of England is expected to raise interest rates again to 3.5% to try and keep control of inflation, but many fear this change and the Government’s announcement today don’t go far enough to help households facing soaring energy bills, rising mortgage rates and vastly inflated food costs.  

Unlike his predecessor, the Chancellor announced his financial statement within the context of a new forecast from The Office for Budget Responsibility (OBR) which predictably highlights that the country is currently in recession. The OBR has forecast the UK’s inflation rate will be 9.1% this year and 7.4% next year. It has also forecast that the economy will grow by 4.2% this year before rising by 1.3%, 2.6% and 2.7% in the following three years. The statement today will also mean that the UK borrowing figures are much higher than previously forecast. This year, the country is forecast to borrow 7.1% of GDP or £177 billion; next year, 5.5% of GDP or £140 billion; by 2027-28, it falls to 2.4% of GDP or £69 billion. The OBR also sees a rise in unemployment from 3.6% today to 4.9% in 2024. Concerningly, predictions reveal that real household disposable income per person, a measure of living standards, is set to fall 4.3% in the 2022-23 fiscal year, which would be the largest drop since ONS records began in 1956.  

Those who supported Sunak during the Conservative leadership election over the summer will welcome the Chancellor’s statement and view it as delivering on the promises that his candidacy stood for. For others who strongly support a laissez-faire approach, the statement will be viewed as a kick in the face of traditional Conservative values and the Government can expect to hear from the likes of Esther McVey who would like to see big infrastructure investment costs cut to avoid having to increase taxes. However, many in the party know that to stand a fighting chance of winning their seats in the next election, the party needs to unite behind the leader and end the internal fallout that has cost them so dramatically in the polls.

Fiscal measures

Hunt confirmed the remit for the Bank of England (BoE) will not be changed and pledged that the Government and the BoE would work in ‘lockstep.’ This is a reversal of a previous plan from former Prime Minister Liz Truss to review the remit of the bank.   

He confirmed two fiscal rules. The first is that underlying debt must fall as a percentage of GDP by the fifth year of a five-year cycle. The second is that public sector borrowing over the same period must be below 3% of GDP. He says the plans announced today meet both rules.  

On tax, Hunt said that ‘we ask those with more to contribute more and to avoid the tax rises to avoid growth.’ Hunt said headline rates of tax would not be changed and tax as a percentage of GDP would be changed by 1%. Hunt said the threshold for the 45p rate of tax would be reduced from £150,000 to £125,140. Those earning over £150,000 would pay just over £1,200 more tax each year.  

Other significant tax measures included the annual exempt amount for capital gains tax being cut from £12,300 to £6000 next year and then £3000 from April 2024 and from 2025 electric vehicles will no longer be exempt from vehicle excise duty, a significant move with half of all new vehicles forecast to be electric by 2025. Hunt said the stamp duty freezes announced at the mini budget would remain until April 2025, after which point the measure would be ‘sunsetted’. 

On business taxes, the employer National Insurance Contributions (NIC) threshold will be frozen until 2028, the employment allowance will be kept at £5000 meaning 40% of businesses will pay no employer NICs at all.  

On windfall taxes, the Chancellor has announced from 1 January 2023 to March 2028 that the energy profits levy would be increased from 25% to 35%. Recognising that low-carbon generators have also benefited from the energy market situation, Hunt said the government would introduce a temporary 45% levy on electricity producers. Together the measures will raise £14 billion next year.  

Hunt said the Government would proceed with a re-evaluation of the business rates system from April 2023. A £14 billion tax cut for businesses will help ‘soften the blow,’ with a government-funded transitional relief scheme, benefitting 700,000 businesses.      

A landmark moment was the commitment to public spending, with budgets being protected in cash terms. Reasonable spending would grow at 1% a year in real terms in the years that follow. Hunt said these measures would ensure overall spending on public services would continue to raise over the next five years.  

Two areas to receive further support were education and health. An extra £2.3 billion per year would be invested in the schools’ budget. On adult social care, the Government will make available up to £4.7 billion in 2024-25, while £3.3 billion will be provided to the NHS to deal with immediate pressures.  

In a move that resembled George Osborne’s tenure as Chancellor, Hunt announced two reviews to be led by prominent figures from the New Labour era: Sir Michael Barber on skills reform and Patricia Hewitt into how best the new Integrated Care Boards can work with appropriate autonomy and accountability. His overall goal for public services was to “deliver Scandinavian quality alongside Singaporean efficiency”.   

On climate change, Hunt said the Government would remain committed to the Glasgow pact agreed at COP26, including a 68% reduction in UK emissions by 2030.  

The defence budget will remain at a level of at least 2% of GDP, while on overseas aid, the Government will not return to the 0.7% target at the current time and would instead remain at the level of around the current 0.5% rate.  

Cost of living

Praising the support for energy bills announced by his predecessor in September, Hunt committed to extending the Energy Price Guarantee for a further 12 months, though at a higher level of £3,000 for the average household. With prices forecast to remain high throughout 2023, this pledge represents an average of £100 for every household. Those who receive means-tested benefits will get an additional £900 payment and Hunt confirmed that a new “targeted approach” for businesses will be announced before the end of the year.  

With four million people currently living in the social rented sector, Hunt committed to capping the increase in social rents at 7% which he claimed would save £200 per year for an average tenant. Since 2020, the maximum amount by which social housing providers can increase rent has been capped at 1% above the rate of inflation, protecting tenants against significantly higher rent increases.  

Committing to a “high-wage, high-skills economy”, Hunt pledged to increase the National Living Wage by 9.7% from April to an hourly rate from £9.50 to £10.42, which he said represents an annual pay rise worth over £1,600 to a full-time worker. While this rise is well above the increase in average earnings, it falls short of the current rate of inflation.  

Hunt confirmed that working age and disability benefits will be upgraded by inflation with an increase of 10.1%, at a cost of £11 billion to the taxpayer, with an average family on universal credit gaining £600. He also committed to increasing pension credit by the same amount to support the poorest pensioners as well as to protecting the triple lock. 

Capital infrastructure and the plan for growth

Hunt made strong commitments to capital infrastructure, pledging that ‘not a penny’ would be cut from capital budgets in the next two years and that they would be maintained at that level in cash terms for the following three years. However, this represents a real term cut due to inflation.  

On energy infrastructure, the Government will proceed with the Sizewell C Nuclear Plant, creating 10,000 high-skilled jobs and energy for 6.5 million homes. 

Hunt said the Government remained committed to delivering the core Northern Powerhouse Rail, HS2 to Manchester, East-West Rail, the new hospital programme, and the giga-bit rollout programme. 

Round 2 of the levelling up fund will proceed, matching the £1.7 billion value of the Round 1 fund. Hunt said the Government would work with the Scottish government on a feasibility study for the A75, supporting the Advanced Technology Research Centre in Wales, and funding a trade and investment event in Northern Ireland in 2023. 

Hunt said the Government is committed to local leadership and that it would deliver devolution details to provide an elected mayor to Suffolk, Cornwall and an area in the Northeast ‘to follow shortly.’ 

Hunt echoed Rishi Sunak’s Mais Lecture from earlier this year with his goal to turn Britain into the “world’s next Silicon Valley”. To achieve this, he has announced a review led by Sir Patrick Vallance by the end of 2023 into how the Government can support the digital; life sciences; green tech and advanced manufacturing sectors.  

Despite rumours it would be cut, the Government will protect the research budget and will increase public funding for R&D to £20 billion by 2024/25 and a decision on Solvency II is upcoming which will “unlock tens of billions of pounds of investment” for growth enhancing-industries.