This week we saw the latest UK budget, sorry, Autumn Statement, from Chancellor Jeremy Hunt which focussed on growth for the future. It often seems strange that we live in a country where the public finances are run on the basis of two annual events that are constantly trying to “one up” the previous statement with surprise changes to the tax system. The short-term nature of current policy decisions makes it quite difficult to plan too far ahead and therefore stimulate growth. Throw in a general election in 2024 when most Tory policies could be unwound, and we hardly have a confident setting for the UK economy on which business can commit to a long-term spending plan.
Sticking closely to the Chancellors “Fiscal Rule” (the aim of which is that public debt as a share of GDP should be lower in five years’ time), he dished out an increase in benefits and cut National Insurance, most of this was already being paid for by his previously enforced freeze of income tax thresholds that have remained in place despite record high inflation persisting for longer than hoped. The favourable rise in tax receipts has left the Chancellor with £30bn of headroom below his fiscal target that he could either spend or save – he chose to spend.
Full expensing of business costs against taxable income will certainly help free up company liquidity for investment. There was not such good news for public sector budgets that are being pressed hard by inflation, with the Office of Budgetary Responsibility announcing after the statement that that there was now a hole to the size of £20bn in the budgets of strained public services that Hunt chose to ignore.
There is a certain amount of irony in the Governments pledge to “take decisions for the long term” when in the last 18 months fiscal policy has been something of a rollercoaster ride, and by Hunt’s own admission, the “long-term” horizon is only five years. He did acknowledge that the overall tax burden had risen once more, largely due to the government paying back the debt incurred during the Covid pandemic and covering rising energy costs. The Chancellor believes that funding business expansion today, will lead to a stronger economy that in turn will create a bigger tax pot from which to support public services in the future.
One eye catching announcement was the pension “Pot for Life” that will allow workers to ask their employers to fund a pension of their own choice, thus bringing to an end a varied career accumulating various small pension pots than can be hard to track down at a later date. Figures suggest that there are currently £27bn of UK assets sitting in lost pension pots as an average UK worker changes jobs 11 times in their career – a number that appears to be rising with more modern flexible working requirements. Quite how small businesses are expected to manage the requirement to fund a different pension for each of their employees was not covered. The Chancellor also stood firm and backed the triple lock pension guarantee with an 8.5% rise in the state pension. ISA allowances stay at £20k, however from April 2024 savers will be able to pay into different ISA products in the same tax year, including illiquid new private equity assets.
You could argue that the Conservative party see the writing on the wall in next year’s elections and have done what they can to help voters and businesses, not having to worry about longer term growth forecasts as, in 12 months’ time, which may well be the Labour party’s problem. Let the political games begin. Do have a good weekend.