Autumn Statement: Jeremy Hunt delivers UK tax cuts, but forecasts show slow growth and worst-ever hit to living standards

Chancellor Jeremy Hunt delivered an upbeat Autumn Statement, but the economic forecasts are far less optimistic

Chancellor Jeremy Hunt claimed the UK had “turned a corner” as he announced a 2p cut to national insurance that will benefit millions of workers, but forecasts have shown slow growth and the worst ever hit to living standards.

The Chancellor delivered his Autumn Statement on Wednesday, where he argued the two percentage point reduction in the main rate will save someone earning £35,000 more than £450 in a change that will benefit 27 million people.

The assertion came during a financial update that also saw Scotland receive an additional £545 million in Barnett consequentials, as well as £200m of direct UK Government investment. The funding prompted Scottish secretary Alister Jack to urge the Scottish Government to spend their cash “more wisely”, amid speculation an increase to income tax for higher earners north of the border is being considered.

The Chancellor is congratulated after his Autumn Statement.

The Chancellor also confirmed that a tax break allowing firms to cut their bills if they invest in new equipment would be made permanent, in what he claimed was the “biggest business tax cut in modern history”.

However, his optimistic tone was contrasted by forecasts from the Office for Budget Responsibility (OBR), which predicted the worst drop in living standards on record, and a sweeping collapse in growth in the years ahead.

The OBR found the changes in the Autumn Statement would reduce the tax burden by 0.7 per cent compared with forecasts in March, but that it will rise in every year to a record post-war high of 37.7 per cent of GDP by 2028/29.

High inflation has also contributed to a situation where the independent budget watchdog warned “living standards are forecast to be 3.5 per cent lower in 2024/25 than pre-pandemic”, representing the biggest reduction in living standards since records began in the 1950s.

In a clear sign that Britain is heading towards a spring election, the UK Government will now rush through emergency legislation to cut national insurance from January 6.

Mr Hunt said high employment taxes “disincentivise the hard work we should be encouraging”, as he cut the 12 per cent national insurance rate on earnings between £12,570 and £50,270 to 10 per cent.

He said the change means that for the average nurse, it is a saving of over £520 and for the typical police officer, it is a saving of over £630 every single year. National insurance cuts will also save an average £350 a year for around two million self-employed people from April.

As well as an an additional £545m in Barnett consequentials, Scotland will also be impacted by the National Living Wage rise, representing a boost of £1,800 to the average annual earnings of a full-time worker. A further £5m grant was given to the Fleming Centre – named after famous Scottish microbiologist Sir Alexander Fleming – in a bid to fight antimicrobial resistance.

There was also a freezing of alcohol duty for six months to August 2024. The Government is also supporting the reallocation of £20m from within the Inverness & Highland City Region Deal to fund essential landside infrastructure improvements for the Corran Ferry. The Scotsman understands this decision came after the UK Government was approached for help by the local council.

In other policy measures, Mr Hunt increased Universal Credit and other benefits by 6.7 per cent from April, in line with September’s inflation figure, ending speculation the Government could have used the lower October figure. He also maintained the triple-lock policy on state pension increases, meaning an 8.5 per cent rise worth up to £900 from April 2024. The Chancellor promised tough welfare reforms, saying it was “wrong economically and wrong morally” for 100,000 people a year to be signed off sick and not required to look for work.

The Autumn Statement sparked a row once the detailed documents were published, with frozen thresholds for income tax meaning that “fiscal drag” has equated to people’s earnings have increased to the point they will either be brought into tax for the first time or moved into higher bands.

This means nearly four million additional taxpayers will now be expected to pay income tax, while three million more will be pushed into the higher rate. An additional 400,000 will pay the top 45 per cent rate.

The proceeds of fiscal drag – also known as a stealth tax – will be £44.6 billion by the end of the OBR’s forecast in 2028/29, up £13.6bn from the OBR’s last forecast in March.

Paul Johnson, director of the Institute for Fiscal Studies (IFS) think-tank, said the national insurance change “undoes only a small fraction of the huge tax increase resulting from the freezing of income tax allowances and thresholds”.

The IFS said the changes “give back less than £1 of every £4 that is being taken away” from households through changes to national insurance and income tax announced since March 2021.

The organisation also took issue with the Treasury, arguing total departmental spending will be £85bn higher in real terms by the end of next Parliament, compared to the start.

Mr Johnson said: “These tax cuts have been ‘paid for’, in effect, by a bigger squeeze on the real-terms value of public service budgets and an even bigger squeeze on public investment, which is frozen in cash terms. There’s a material risk that those plans prove undeliverable and today’s tax cuts will not prove to be sustainable.”

Liberal Democrat leader Sir Ed Davey said: “This Autumn Statement was a Hunt hoax. Buried in the small print is a massive stealth tax raid that will drag millions into paying a higher rate in the coming years.”

Shadow chancellor Rachel Reeves said: “We were told to expect an Autumn Statement for growth. But growth has been revised down next year, the year after, and the year after that too.

“What has been laid bare today is the full scale of the damage that this Conservative government has done to our economy over 13 years. And nothing that has been announced will remotely compensate.”