In existence and winning elections for almost two centuries, it is sometimes said that the Conservative and Unionist Party is one of the most successful political outfits in the history of democratic nations.
Analysts and historians often attribute this instinct for survival to the party’s ability to move with the times. And we have certainly seen Rishi Sunak make turbocharged use of this proclivity in recent weeks.
In his first year he posed as a careful steward of stability, before pivoting recently to ‘man of change’, criticising the past three decades of British governments. This was then swiftly followed by inviting his predecessor-but-three, Lord Cameron, back into Cabinet as Foreign Secretary – which seemed a little at odds with the new message.
And today we see yet another unexpected transformation – from inflation-buster to tax-cutter.
Yes, the big news from Mr Sunak’s Chancellor, Jeremy Hunt, today was the cut in the main rate of National Insurance from 12% to 10%. Given that up until a few weeks ago, both Prime Minister and Chancellor were claiming that high inflation meant it was no time to release more money into the economy via tax cuts, this was quite a change.
We have seen good progress on wrestling annual price rises down. From a recent peak of 11.1% in the month Rishi Sunak took office, October 2022, the latest data shows the rate at 4.6%. This more than meets the government’s stated aim of halving inflation by the end of 2023. Yet at the same time, it doesn’t take an economic genius to see that we are still some way short of the official target of 2%.
Just perhaps, the change of heart has something to do with the government’s dire position in the polls. To be fair, the Chancellor was at pains to point out that the independent Office for Budget Responsibility forecaster (OBR) had assessed that his overall package today would contribute to bringing inflation down. Still, one cannot help but think inflation may yet have come down even further without these cuts coming so soon.
Elsewhere, there were bumper paydays for both pensions and wages. The Chancellor confirmed that the state pension will rise by 8.5% next year to match earnings, staying true to the stipulations of the ‘triple lock’. Meanwhile the National Living Wage will rise by a mammoth 9.8% – and will also extend to 21- and 22-year-olds for the first time.
And what of the broader prospects for the economy? Here the news was a distinctly mixed bag. Projections for the government’s deficit and debt load were each improved, which was good to see. However, although we have so far avoided the recession predicted by the Bank of England and other forecasters, the OBR actually downgraded its economic growth forecasts for next year and the year after – from levels which were pretty meagre to start with.
Remember too that those forecasts take into account all the measures the Chancellor announced today. It therefore seems unlikely that the extended relief on business rates, expanded Enterprise Zones and ‘full expensing’ business investment tax cut will prove all that effective in juicing the economy.
Still, investors should keep in mind that it is often not the case that economies and stock markets move in lockstep. The UK market continues to play host to a number of high-quality companies trading at what appear to be attractive valuations, with much negativity now behind us and supportive interest rate cuts likely to be on the way at some point next year.
So there we have it. If all the Autumn Statement excitement and changes of direction have been just too much for you, then get yourself down to the pub for a fortifying drink. No increase in alcohol duties until August (!)
Key measures announced for England (national variations for Scotland, Wales and Northern Ireland may apply)
Personal taxation
§ Main rate of employee National Insurance to be cut from 12% to 10% from 6 January
§ Class 2 National Insurance – paid by self-employed people earning more than £12,570 – to be abolished entirely from April
§ Class 4 National Insurance – paid by self-employed people earning between £12,570 and £50,270 – to be cut from 9% to 8% from April
Other taxation
§ ‘Full expensing’, allowing companies to deduct business investment from profits for taxation purposes, to be made permanent
§ 75% business rates discount for retail, hospitality and leisure firms extended for another year
§ Alcohol duties frozen until 1 August
Wages, pensions and benefits
§ The National Living Wage will rise from £10.42 to £11.44 an hour from next April, an increase of 9.8%
§ The state pension will rise by 8.5% from April, matching September’s rate of average earnings growth
§ Means-tested and disability benefits, will each rise by 6.7%, matching September’s rate of inflation
§ Reforms are to be instituted to the Work Capability Assessment for those looking to claim sickness-related out-of-work benefits, reflecting the increased availability of working from home since the pandemic
