Introduction: Richest benefit most from autumn statement
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Richer Britons benefit most from yesterday’s autumn statement, new analysis of Jeremy Hunt’s announcement shows.
The Resolution Foundation have calculated that around 40% of the gains from the tax and benefit measures announced yesterday will go to the richest fifth of the population.
Those measures include cutting the main 12% rate of employee national insurance contributions by two percentage points to 10% from January, the start of an election year.
The top 20% will gain £1,000 on average from Hunt’s changes, five times the £200 gains seen by the bottom fifth, Resolution says.
The IPPR came to a similar conclusion too – they worked out yesterday that for every £100 Jeremy Hunt spent on personal tax cuts, £46 will benefit the richest fifth of households. Only £3 of every £100 of tax cuts will go to the worst-off families, they say.
Yesterday, the New Economics Foundation calculated that poorest households will be over £200 per week short of an acceptable standard of living following the Autumn Statement.
🚨NEW: Following the Autumn Statement, our analysis shows the poorest quarter of households will be over £200 a week short of what they need for an acceptable standard of living by April 2024.
The reality is this budget will make people poorer. pic.twitter.com/GBNXINRVCc
— NEF (@NEF) November 22, 2023
But despite yesterday’s giveaways, the tax burden is still heading towards a post-war high. Yesterday brought £20bn of tax cuts, but that must be set against around £90 billion of tax rises (including higher Corporation Tax) already announced this parliament.
Resolution says:
So despite the tax-cutting rhetoric, taxes are rising by 4.5 per cent of GDP between 2019-20 and 2028-29, equivalent to £4,300 per household.
Taken together, Resolution says, all the tax and benefit measures announced in this parliament remain progressive, with the richest fifth of households set to lose £1,100 on average, while the poorest 20% gain an average of £700.
The autumn statement, though, was also based on a squeeze on government departments over future years – which would erode £19bn from the real value of departmental budgets. Such a plan is simply implausible, given inflationary pressures on departments.
Torsten Bell, chief executive of the Resolution Foundation, explains:
“Jeremy Hunt yesterday got his pre-election giveaways in early, with an Autumn Statement offering tax cuts today, at the price of implausible spending cuts tomorrow. Well-targeted specifics, addressing problems such as our tax system’s bias against working-age earnings or benefit system’s failure to keep pace with fast rising rents, were juxtaposed with far less well-designed big picture fiscal choices. Tax cutting rhetoric clashed with tax rising reality, and positive steps to encourage business investment combined with a growth sapping hit to public investment.
“Ultimately this reflects the pressures, not only of an upcoming election, but of governing a sicker, older, slower growing Britain, amidst an era of far higher interest rates.
“That might be difficult for policy makers, but it’s a disaster for households whose wages are stuck in a totally unprecedented 20 year stagnation. This parliament is set to achieve a truly grim new record: the first in which household incomes will be lower at its end than its beginning.”
Resolution have also calculated that renters in Inner South London, Inner Greater Manchester and Bristol benefit most by the decision to re-peg Local Housing Allowance at the 30th percentile of rents in 2024-25.
But overall, the UK us also facing a “grim new record on living standards”, Resolution adds:
With just a year to go until the next General Election, this parliament is on track to be the first in which real household disposable incomes have fallen (by 3.1 per cent from December 2019 to January 2025). Households will on average be £1,900 poorer at the end of this parliament than at its start.
We’ll hear more from Resolution, and the Institute for Fiscal Studies, and other economists through the day.
The agenda
-
9am GMT: Resolution Foundation holds briefing on the autumn statement
-
9am GMT: Eurozone ‘flash’ PMI survey of manufacturing and services sectors
-
9.30am GMT: UK ‘flash’ PMI survey of manufacturing and services sectors
-
10.30am GMT: Institute for Fiscal Studies holds briefing on the autumn statement
Key events
On the tax cuts announced yesterday, “It seems like the chancellor has taken away with both hands and now he’s giving back with one”.
That’s the verdict of Nina Skero, the CEO of economics consultancy Cebr, speaking to Bloomberg TV this morning.
Skero explains that the cut to national insurance means Hunt is only giving back around a quarter of what’s being taken away by keeping tax thesholds frozen, rather than uprating with “very, very high inflation”
And on business taxes, making full expensing permanent does not make up for the very high business tax increases in recent years, Skero adds.
The fiscal measures announced by Jeremy Hunt will do very little to stimulate investment and economic growth, warns Professor Costas Milas, of the Management School at University of Liverpool.
Professor Milas tells us:
The tax break for companies that invest in new equipment will be made permanent which is a good move. All other fiscal give-aways (such as state-pension increases and “minimum” wage increases above current inflation) will most likely be seen by the BoE as inflationary and therefore delay any interest rate cuts, which, of course, will undermine investment planning.
What worries me most is, however, policy uncertainty. In a brand new co-authored paper, I find that what has hammered Foreign Direct Investments (FDIs) in the UK is persistently high policy uncertainty since the Brexit vote which makes investors (whether domestic or international ones) unwilling to invest in the UK.
One implication here is that uncertainty about the timing of the forthcoming general election will take priority over permanent tax breaks in investment decisions and therefore undermine our economic growth prospects…
Earlier this week, deputy Bank of England governor Sir Dave Ramsden warned that the outcome of the Brexit vote and years of political uncertainty it triggered has had “a chilling impact” on business investment in Britain.
Companies such as telecoms giant BT should benefit from Jeremy Hunt’s decision to make full expensing permanent.
That policy allows businesses to offset investment in items such as new IT equipment and factory machinery against tax.
Shares in BT Group jumped 3.7% yesterday, as traders calculated that permanent full expensing would help BT, as it spends billions of pounds rolling out high-speed internet infrastructure.
And this morning, BT are the top riser on the FTSE 100 index of blue chip shares, up another 1.7%.
The broader market reaction to the autumn statement was rather muted – certainly less dramatic than after the mini-budget of September 2022.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says:
The 100% tax relief – the so-called ‘full expensing’ – is good for businesses that invest in big machinery but in a service-focused economy like the UK’s, the benefits will likely remain limited.
As the Guardian reported last night, the cut in workers’ national insurance contributions announced yesteday has fuelled speculation about a snap spring general election.
But, City consultancy Capital Economics warned last night that yesterday’s pre-election splurge from Jeremy Hunt will be followed by a post election squeeze.
Capital Economics also suggested that Hunt’s tax cuts will make it harder to cut UK interest rates soon, saying:
The net giveaway the Chancellor announced in the Autumn Statement is designed to curry favour ahead of an election late in 2024. However, fiscal policy is still being tightened in 2024/25 and it looks as though whoever wins the election will have to implement a big squeeze on real spending.
What’s more, the near-term boost to the economy from the new tax cuts may just mean inflation is a bit higher than otherwise. This supports our view that the Bank of England won’t cut interest rates from 5.25% until late in 2024.
Simon French, chief economist at UK investment bank Panmure Gordon, says the autumn statement was a “decent fiscal event”.
He welcomes the focus on stimulating business investment through permanent full expensing of new plant and machinery (allowing companies to offset this spending against their tax bill).
But there were also “big picture areas” where the Chancellor was silent, French warns, adding:
The most salient was on public sector productivity – an arena that has been a weeping sore at the heart of the public finances for a quarter of a century.
Here’s a thread with more analysis:
First thing – the @OBR_UK economic outlook was simultaneously a larger U.K. economy & lower growth rates than in March. How can these two things be true? Well the big ONS upgrade in August – that was largely absent from comment yesterday – framed all the fiscal choices (2/n)
— Simon French (@shjfrench) November 23, 2023
Turning to choices – whilst it was written up by many as an “election budget” actually the big interventions tally with addressing long-dated themes (underinvestment, preferential treatment for non-labour income, reversal in self employment). V little Labour disagrees with (3/n)
— Simon French (@shjfrench) November 23, 2023
Throughout the Statement there were signs of HMT engagement with OBR on supply measures. Some may accuse govt of leaning on its independent fiscal watchdog, but is there greater contrast with mini budget & market reaction? (albeit inflation/energy backdrop also v different) (4/n)
— Simon French (@shjfrench) November 23, 2023
Is this package inflationary? Well the decision to uprate UC, pensions (+6.7%;+8.5% respectively) & cut NICs does introduce > aggregate demand than baseline, so it hinges on whether supply side responds. Immigration data today will show that one part of supply picture is! (5/n)
— Simon French (@shjfrench) November 23, 2023
But while this was a “decent report card” for the Chancellor there were a couple of areas that were underwhelming. Public sector productivity & capital market reforms. On productivity – the dire data (productivity up by less than 5% since 1997!) there was no sign of a plan (6/n)
— Simon French (@shjfrench) November 23, 2023
Every fiscal event as far as the eye can see will be hard without a concerted effort on public sector productivity. Funding for depts after the next GE looks very tight (as many have noted) and excitable words on AI, Maude review & back to office edicts are no substitute (7/n)
— Simon French (@shjfrench) November 23, 2023
Any incoming government will face this problem and the idea that the tax burden can move off a post WW2 high of 38% without progress in this area is laughable. Big job for new CST Laura Trott ahead of March Budget, and for successor CSTs. (8/n)
— Simon French (@shjfrench) November 23, 2023
Finally on Capital Markets. One investor said to me “an autumn statement is no place for such reforms”. They may be right, but ministers lined this up themselves. The policy response was underwhelming. It might need a very high profile plc to delist for the penny to drop (9/n)
— Simon French (@shjfrench) November 23, 2023
The increase in energy bills announced this morning is the last thing families need as we approach Christmas, says TUC general secretary Paul Nowak:
“Energy bills are already 50% higher than two years ago. And this year minsters have removed any government support with energy costs— so today’s rise will just hammer households even harder.
“It didn’t have to be this way.
“The Conservatives could have helped bring down bills by imposing a proper windfall tax on the likes of Shell and BP. But they left billions on the table.
“And instead of investing in improvements for draughty homes, they have left people out in the cold.”
Energy bills in Great Britain to rise by 5% from January as cap hits £1,928
Jillian Ambrose
Newsflash: Households across Great Britain will begin the new year with a 5% increase in energy bills after the regulator raised the price cap to an average of £1,928 a year for the typical gas and electricity bill.
Ofgem has just announced it is raising the maximum price that energy suppliers can charge their customers from £1,834 a year for the typical household between October to December.
The rise follows a rise in global gas market prices after the start of the Israel-Hamas war last month.
From January to March the price cap will rise to £1,928 a year, which will determine the energy bills for most households.
Jonathan Brearley, CEO of Ofgem, said:
“This is a difficult time for many people, and any increase in bills will be worrying. But this rise – around the levels we saw in August – is a result of the wholesale cost of gas and electricity rising, which needs to be reflected in the price that we all pay.
“It is important that customers are supported and we have made clear to suppliers that we expect them to identify and offer help to those who are struggling with bills.
Here’s the full story:
Reminder: the cap restricts the price of a unit of energy – there’s no limit on the maximum bill a customer can run up.
Nissan set to build two new electric models at its Sunderland plant
In a boost to the UK car industry, Nissan is expected to commit to manufacturing future electric versions of two of its best-selling models at its Sunderland plant.
Nissan will announce it will build new electric Qashqai and Juke models at the Sunderland site – a decision that will help safeguard thousands of jobs there.
The decision, after months of talks involving Rishi Sunak and Jeremy Hunt, is expected to be announced tomorrow.
According to Sky News, Nissan has been promised a significant government funding guarantee, although it was unclear whether any taxpayer cash would be provided up front.
Exclusive: Nissan will announce on Friday that it will build electric versions of the Qashqai and Juke models at its plant in Sunderland in a major boost for Britain’s biggest car manufacturing site. The project will involve a major investment from the Japanese carmaker…
— Mark Kleinman (@MarkKleinmanSky) November 22, 2023
2/2…and government support in the form of a guarantee from taxpayers. Both PM Rishi Sunak and chancellor Jeremy Hunt, who used today’s autumn statement to write a £4.5bn cheque to advanced UK manufacturing, are likely to be involved in the announcement. https://t.co/QrPs1HGiQK
— Mark Kleinman (@MarkKleinmanSky) November 22, 2023
Petrol-powered Qashqai and Juke cars are currently made at the Sunderland site, where around 6,000 workers are employed, so this decision should remove any lingering uncertainty over the future of the plant.
Nissan warned in 2019 that uncertainty over Brexit was affecting businesses. But in 2021 it committed to its Sunderland plant after the Brexit trade deal was agreed.
Introduction: Richest benefit most from autumn statement
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Richer Britons benefit most from yesterday’s autumn statement, new analysis of Jeremy Hunt’s announcement shows.
The Resolution Foundation have calculated that around 40% of the gains from the tax and benefit measures announced yesterday will go to the richest fifth of the population.
Those measures include cutting the main 12% rate of employee national insurance contributions by two percentage points to 10% from January, the start of an election year.
The top 20% will gain £1,000 on average from Hunt’s changes, five times the £200 gains seen by the bottom fifth, Resolution says.
The IPPR came to a similar conclusion too – they worked out yesterday that for every £100 Jeremy Hunt spent on personal tax cuts, £46 will benefit the richest fifth of households. Only £3 of every £100 of tax cuts will go to the worst-off families, they say.
Yesterday, the New Economics Foundation calculated that poorest households will be over £200 per week short of an acceptable standard of living following the Autumn Statement.
🚨NEW: Following the Autumn Statement, our analysis shows the poorest quarter of households will be over £200 a week short of what they need for an acceptable standard of living by April 2024.
The reality is this budget will make people poorer. pic.twitter.com/GBNXINRVCc
— NEF (@NEF) November 22, 2023
But despite yesterday’s giveaways, the tax burden is still heading towards a post-war high. Yesterday brought £20bn of tax cuts, but that must be set against around £90 billion of tax rises (including higher Corporation Tax) already announced this parliament.
Resolution says:
So despite the tax-cutting rhetoric, taxes are rising by 4.5 per cent of GDP between 2019-20 and 2028-29, equivalent to £4,300 per household.
Taken together, Resolution says, all the tax and benefit measures announced in this parliament remain progressive, with the richest fifth of households set to lose £1,100 on average, while the poorest 20% gain an average of £700.
The autumn statement, though, was also based on a squeeze on government departments over future years – which would erode £19bn from the real value of departmental budgets. Such a plan is simply implausible, given inflationary pressures on departments.
Torsten Bell, chief executive of the Resolution Foundation, explains:
“Jeremy Hunt yesterday got his pre-election giveaways in early, with an Autumn Statement offering tax cuts today, at the price of implausible spending cuts tomorrow. Well-targeted specifics, addressing problems such as our tax system’s bias against working-age earnings or benefit system’s failure to keep pace with fast rising rents, were juxtaposed with far less well-designed big picture fiscal choices. Tax cutting rhetoric clashed with tax rising reality, and positive steps to encourage business investment combined with a growth sapping hit to public investment.
“Ultimately this reflects the pressures, not only of an upcoming election, but of governing a sicker, older, slower growing Britain, amidst an era of far higher interest rates.
“That might be difficult for policy makers, but it’s a disaster for households whose wages are stuck in a totally unprecedented 20 year stagnation. This parliament is set to achieve a truly grim new record: the first in which household incomes will be lower at its end than its beginning.”
Resolution have also calculated that renters in Inner South London, Inner Greater Manchester and Bristol benefit most by the decision to re-peg Local Housing Allowance at the 30th percentile of rents in 2024-25.
But overall, the UK us also facing a “grim new record on living standards”, Resolution adds:
With just a year to go until the next General Election, this parliament is on track to be the first in which real household disposable incomes have fallen (by 3.1 per cent from December 2019 to January 2025). Households will on average be £1,900 poorer at the end of this parliament than at its start.
We’ll hear more from Resolution, and the Institute for Fiscal Studies, and other economists through the day.
The agenda
-
9am GMT: Resolution Foundation holds briefing on the autumn statement
-
9am GMT: Eurozone ‘flash’ PMI survey of manufacturing and services sectors
-
9.30am GMT: UK ‘flash’ PMI survey of manufacturing and services sectors
-
10.30am GMT: Institute for Fiscal Studies holds briefing on the autumn statement
