Andrew Bailey can be forgiven for gnashing his teeth during Wednesday’s autumn statement, as Jeremy Hunt repeatedly claimed credit for the work done by the Bank of England governor and his colleagues.
The Monetary Policy Committee (MPC) hiked interest rates 14 consecutive times, taking them to 5.25 per cent – and also taking a lot of flak in the process. Now that inflation has fallen by more than half (to 4.6 per cent at the last measurement), the chancellor and his boss Rishi Sunak have been claiming the credit at every opportunity.
True, Mr Hunt did ignore growing calls for tax cuts from the benches behind him, thus keeping fiscal policy aligned with monetary policy. But that was light work compared to what the MPC had to do. And now, that resistance has crumbled into a relative giveaway.
He was careful to state that the Office for Budgetary Responsibility (OBR), which has a record of taking a somewhat optimistic view of government policies, had told him his plans were okay (in other words, not especially inflationary.)
A few pounds off national insurance for most workers was the giveaway, but it’s not quite as good as it looks. As PricewaterhouseCoopers noted: “There were no increases to any tax thresholds, meaning the effects of fiscal drag will continue to bite, offsetting in part the savings achieved! With the thresholds remaining in place, and wages rising quickly, more and more workers will be dragged into higher tax rate bands. A stealth tax if ever there was one.
But this was still “the biggest tax reduction package since 1988” according to the Resolution Foundation, with the chancellor spending nearly all of the £90bn of fiscal good news provided to him by the OBR.
Business was a big focus, with what Mr Hunt described as “110 pro-growth measures” including a lorry load of those “supply-side reforms” Liz Truss was always banging on about. Mr Hunt probably won’t thank me for mentioning her name in connection with his work.
Some of these were welcome, particularly from the business perspective. For example, the chancellor opted to permanently allow the full expensing of business investment; it provides firms with a generous tax break for certain investments, with the aim being to improve Britain’s historically poor record in this sphere.
Growth was very much the word of the day, at a time when there is little of it to be had. The OBR’s growth forecast for 2024 has been cut from 1.8 per cent to 0.7 per cent, while the figure for 2025 goes from 2.5 per cent to 1.4 per cent. This year’s number is up to 0.6 per cent, from a 0.2 per cent contraction forecast in March.
The OBR says business investment relief will provide a small, but welcome ongoing economic benefit. The pity, however, is that public sector investment won’t match it.
Among those with the most to be happy about from the autumn statement were small firms. Tina McKenzie, policy chair at the Federation of Small Businesses (FSB), said: “Jeremy Hunt has taken very welcome action on late payments, small businesses’ rates, and self-employed taxation. Small businesses – and the 16 million people who work for them – are the route to future growth that will raise living standards across the whole country.”
But keeping business rates in check for smaller shops and venues won’t help the larger ones, and wider reform for this much-hated levy – which is charged to businesses whether they make money or not – is not on the cards for now. This led the British Retail Consortium to fulminate: “Retailers and their customers have been sold out by the chancellor’s statement, which does not do enough to support shops, shoppers, and an industry that employs over 3 million people, and many more across its supply chains.”
So while this was a business-friendly autumn statement in many ways, opportunities were missed and Britain’s economy continues to splutter. A further giveaway is on the cards in the spring Budget in which voters, not businesses, are likely to benefit.