Autumn statement reaction

Professor Stephen Barber share’s a person view on the Autumn Statement
November 23, 2023

The nature of this Autumn State­ment was nev­er real­ly in doubt. The Chan­cel­lor, the Prime Min­is­ter and oth­er gov­ern­ment fig­ures had spent much of the past two weeks mak­ing over­ly opti­mistic nois­es about the health of the econ­o­my and brief­ing freely on the nature of the tax cuts that might be expect­ed. 

This includ­ed an unusu­al pre­lude on Mon­day when Sunak him­self gave a speech claim­ing that now ‘he’ had halved infla­tion ‘the time has come to cut tax­es’. It didn’t seem to mat­ter that infla­tion has fall­en large­ly as a result of glob­al ener­gy prices, that mon­e­tary pol­i­cy remains firm­ly in the hands of the Bank of Eng­land or even that in stark con­trast to hav­ing ‘achieved the tar­get’ prices are still ris­ing at more than twice the 2% rate set by the Trea­sury to be deliv­ered by the Bank’s Mon­e­tary Pol­i­cy Com­mit­tee (and which the Chan­cel­lor fore­cast would not be hit before 2025). This means that while inter­est rates might now have peaked, they are like­ly to remain at these lev­els for some time and the new glob­al econ­o­my means they are unlike­ly to return to the ultra-low lev­els expe­ri­enced for over a decade since the finan­cial cri­sis. 

When Jere­my Hunt became Chan­cel­lor last year it was to re-estab­lish sta­bil­i­ty at the end of Liz Truss’s short and dis­as­trous pre­mier­ship. He became the dom­i­nant fig­ure in gov­ern­ment, talk­ing hard real­i­ties and revers­ing the calami­tous unfund­ed tax cuts of his pre­de­ces­sor. His was the voice of rea­son amid a cacoph­o­ny of pop­ulism. He was soon, though per­haps briefly, joined in this approach by the new Prime Min­is­ter who promised com­pe­tence and man­age­ri­al­ism. But while Hunt has large­ly held the line over the past year, Sunak has been much more unnerved by a com­bi­na­tion of tru­ly ter­ri­ble poll rat­ings and pres­sure from his own right wing who nev­er want­ed him in Num­ber 10. It is the rea­son why the PM has drift­ed, not entire­ly suc­cess­ful­ly, into the sort of cul­ture war pol­i­tics asso­ci­at­ed with Boris John­son and talks about long-term deci­sions despite the blind­ing­ly obvi­ous fact that a gen­er­al elec­tion is on the hori­zon that will in all like­li­hood eject him and his par­ty from office. 

So the choice was respon­si­ble com­pe­tence or pop­u­lar­ism. This Autumn State­ment rep­re­sent­ed a tus­sle between these two forces and nei­ther side won. But nei­ther entire­ly lost either. 

Respon­si­ble Hunt announced 110 mod­est but tar­get­ed inter­ven­tions invest­ing in skills, free­ing up plan­ning, lib­er­al­is­ing pen­sion fund rules (an inter­est­ing one), addi­tion­al cash for appren­tice­ships, invest­ment in net zero and green indus­tries and AI, new R&D tax relief, new invest­ment zones, regen­er­a­tion, abol­ish­ing Class 2 NI for the self-employed, and more…

But pop­ulist Hunt made an appear­ance too. Pre­dictably, the pen­sions triple lock was main­tained boost­ing state pen­sions by 8.5%. A clam­p­down on Ben­e­fits for the unem­ployed not tak­ing up jobs was thrown out as red meat to the back bench­es. But then the finale. Billed as ‘the biggest busi­ness tax cut in mod­ern British his­to­ry’ a two per­cent­age point cut in employ­ee Nation­al Insur­ance became the cen­tre­piece of the State­ment. 

Tax cuts are what the right of his par­ty want­ed but giv­en that they were trailed so heav­i­ly in the run up to the Chancellor’s state­ment, there is a polit­i­cal risk that they will be ‘banked ‘by sup­port­ers who would have want­ed to go fur­ther. Much fur­ther. 

The oth­er prob­lem for the Chan­cel­lor in deliv­er­ing the Tory right’s holy grail of slash­ing tax­es is that not only are they poten­tial­ly infla­tion­ary (though he was at pains to empha­sise that his over­all pack­age is not) but that there is so lit­tle scope for sys­tem­at­i­cal­ly bring­ing them down such are spend­ing com­mit­ments, debt lev­els and growth rates. While Hunt was jubi­lant that Britain has avoid­ed a tech­ni­cal reces­sion and there was a lit­tle ‘head­room’ in this round, GDP is stag­nant. And while the UK is far from alone in expe­ri­enc­ing chal­leng­ing eco­nom­ic con­di­tions, the hard truth is that growth has been com­plete­ly anaemic since that finan­cial cri­sis — a lost decade if you like. 

The irony too of the Chancellor’s so-called ‘long term deci­sions’ is that not only are these mea­sures large­ly designed for short term polit­i­cal head­lines ahead of an elec­tion year, but also that it is like­ly to cre­ate a fis­cal headache for Hunt’s suc­ces­sor when it comes to bal­anc­ing the books post-elec­tion. 

Respon­si­ble Hunt then has deliv­ered the sort of mea­sures a Chan­cel­lor might eye at the begin­ning of a Par­lia­ment. But pop­ulist Hunt recog­nised the polit­i­cal pres­sure from his own right wing and the time tick­ing away until reck­on­ing at the polls.