Budgets and autumn statements are always a mix of economics, politics, ideology, theatre and the hidden. This one was the same. Looking at the statement as a whole, first impressions are that this was a more measured and rational budget statement than we have seen for a few years and notable for the shift in tone away from bad news and gloomy deficit forecasts. Still, as ever, it’s worth digging in to see what we can learn.
The Sensible
There were a few policies in the budget which I would put in the sensible bucket.
Reforms to facilitate pension fund consolidation, simplifying the ability of people to navigate pensions when changing jobs, and encouraging more significant investment of the country’s vast pension assets in startups, innovation and growth businesses all make sense.
Maintaining a competitive tax regime for businesses also makes sense. Making the 100% full expensing deduction on capital investments permanent, simplifying and extending the R&D tax credit regime, extending EIS and VCT reliefs to 2035, and expanding the incentives on investment zones along with a few other more minor reforms means that, alongside current corporate tax rates, the Government is probably doing all it can to encourage business investment.
There is just enough truth in the Chancellors statement that the UK has one of the most attractive corporate tax regimes amongst the larger developed economies to make it stand up to scrutiny.
Other sensible measures include freezing the business rates multiplier, extending the relief of retail, leisure and hospitality rates, tweaks to ISA rules, IR35, and developing current import tariff suspensions for five years and some other current tax rule clarifications. And, of course, freezing alcohol duty in pubs (although I would like to see a reduction).
I was most excited by the announced £4.5bn to support an industrial strategy and investment in strategically important sectors: automotive, aerospace, life sciences, green industries and support for advanced manufacturing – the UK and Wales are in desperate need of a coherent industrial growth strategy. I was less excited when I learnt there was a catch – the £4.5bn funding will only start to be available from 2025-26.
The Aspirational
As with the £4.5bn investment in strategically important industries, many of the announcements in the autumn statement read as aspirations pushed out into the future.
The Autumn Statement contains a mindboggling 100+ references to various papers, reviews, reforms, initiatives, consultations, funds, future policies, groups, recommendations and schemes. For those of you who are interested, they include (feel free to skip down past the list):
The Independent Policing Productivity Review; The NHS Long Term Workforce Plan; The Public Sector Productivity Programme; The Government Efficiency Framework (GEF); The Public Bodies Review Programme; The Roadmap for Digital and Data; The Review to improve the measurement of public sector productivity; Tackling the Tax Gap; The Back to Work Plan; Individual Placement and Support for Severe Mental Illness; Talking Therapies; The Work Capability Assessment Review; The Occupational Health Framework Expert Group; Supporting the Office for Investment (no, I had never heard of it either); The Energy Systems Catapult; The Energy Security Investment Mechanism; The National Infrastructure Commission’s (NIC) April recommendations on planning; The Nationally Significant Infrastructure Project regime; Getting Great Britain Building Again; The National Networks and Energy National Policy Statements; The Planning Performance Agreements; The Review by the Electricity Network Commissioner; The Transmission Acceleration Action Plan; The Action Plan to halve the time to build new grid infrastructure to seven years; The Plan to Deliver a world-class education system; The Electricity System Operator review; The Strategic Spatial Energy Plan; The National Infrastructure Assessment phase 2 (NIA2); Extending the Growth Duty to Ofgem, Ofwat and Ofcom; Smart Data Big Bang; Network North; City Region Sustainable Transport Settlements; The Long-term Investment for Technology and Science (LIFTS) initiative; The BBB Growth Fund; The Venture Capital Fellowship; Lord Harrington’s FDI Review; The Ministerial Investment Group; The Improved toolkit for the Office for Investment; Lord Hill’s Listings Review; Mark Austin’s Secondary Capital Raising Review; Rachel Kent’s Investment Research Review; The Wholesale Markets Review; The Investment Research Review; The Edinburgh Reforms; The Smarter Regulatory Framework; Joe Garner’s independent review into the future of payments; The National Payments Vision; The New Payments Architecture; Sir Paul Nurse’s review; The National Academy focussed on mathematical sciences; The Independent Review of Spin-outs; The National Quantum Strategy; The British Business Bank’s Future Fund: Breakthrough programme; The Youth Mobility Scheme; The Payment & Cash Flow Review Report; The Made Smarter Adoption programme; The SME Digital Technology Taskforce; The Help to Grow: Management programme; The UK Emissions Trading Scheme reforms; The Industrial Energy Transformation Fund (IETF); The Climate Change Agreement scheme; The Electricity Generator Levy (EGL) exemption; Carbon Capture, Usage and Storage (CCUS); Dame Angela McLean’s review of the role that regulation can play in driving innovation and growth in advanced manufacturing; The Critical Minerals Strategy; The Connected and Automated Mobility R&D programme; The Advanced Manufacturing Plan and UK Battery Strategy; The Small Modular Nuclear Reactors Plan (SMRs); The Green Industries Growth Accelerator (GIGA); Powering Up Britain; The AI Safety Summit; The AI Safety Institute; The AI Regulatory Sandbox; The Manchester Prize; Lord O’Shaughnessy’s recommendations on improving the UK’s commercial clinical trial offer; Clinical Trial Delivery Accelerator; Manufacturing Centre of Excellence in Oligonucleotides; Our Future Health (OFH) programme; Rare Therapies Launch Pad; The Voluntary Scheme for Branded Medicines Pricing, Access, and Growth; The UK life sciences ecosystem fund; Sector Vision for the creative industries; The Audio-Visual Expenditure Credit; Lifelong Learning Entitlement; The Advanced British Standard; The Education Endowment Fund; Levelling Up Fund; Long-Term Plan for Towns; Investment Opportunity Fund; Memorandum of Understanding outlining the next Spending Review for the West Midlands and Greater Manchester Combined Authorities; National Infrastructure Commission’s recommendation to devolve local transport powers and funding to local authorities; trailblazer devolution deal with the North East; Level 3 deals with Greater Lincolnshire, and Hull and East Yorkshire, and Level 2, non‑mayoral, deals with Cornwall and Lancashire; Levelling Up Partnerships programme; Tackling Paramilitarism Programme; East West Rail; Cambridge Delivery Group; Docklands 2.0; Local Nutrient Mitigation Fund; Affordable Homes Guarantee Scheme; Public Works Loan Board policy; Local Authority Housing Fund; Multinational Top-up Tax, Domestic Minimum Tax and Undertaxed Profits Rule; Veterans’ Places, People and Pathways Programme; Chief Secretary to the Treasury public sector productivity programme; Tackling the Economic Impacts of Domestic Abuse (TEIDA) Fund; Flexible Fund for victims of domestic abuse; Help to Save; Consultation on taxation of environmental land management and ecosystem service markets….
Against the 100+ new or expanded initiatives mentioned, it’s worth noting that just one initiative in the Autumn Statement is being abolished: the Economic Advisory Council – I’m not sure what they did to deserve that honour.
All of the above are part of the Government’s future plans to support businesses and promote growth.
Some of these may have been worked out in detail already, but most appear to be works in progress. I have no doubt that some, many, or even all may be crucially important. Running a country is ultimately difficult and complex.
It is no wonder that SME owners and those of us who support businesses scratch our heads when we try to figure out how government policies will impact us or where to go for support. When doing business in Wales, this feeling of bewilderment is magnified.
Above is just a list of the Westminster-led initiatives contained in this autumn statement before adding any pre-existing initiatives or those from the Welsh Government, the Capital Regions or Local Governments.
The UK excels in creating a whole new language when it comes to Government. It would be good to see a genuine prioritisation of the issues impacting businesses, workers and the economy and a greater focus to Government effort and spending. It’s worth remembering that the cost of HS2 went from £40bn to over £100bn primarily because of bureaucratic tinkering. Lessons should have been learnt.
The Theatrical
The 2% drop in Employee NIC contributions was the big showstopper. To paraphrase – what the Government taketh away, the Government giveth a bit back.
Better than expected borrowing figures and forecasts have given the Government headroom to offset the fiscal drag impact of freezing the personal allowance by reducing NIC by 2%.
This could have fallen into the list of sensible announcements. However, just increasing the personal allowance would have probably made more sense. Of course, that wouldn’t have given the Government its headline-grabbing tax cut. Whilst it’s not the most egregious example of sleight of hand or tax policy dictated by headlines, this constant obfuscation is why our tax legislation is getting ever more complex (a good thing for accountants).
The Political
The two big announcements which fall most into the political bucket were the confirmation of the triple lock, with pensions rising by 8.5%, and the increase in the National Living Wage from £10.42 (£10.18 for 21 to 22-year-olds) to £11.44 – an increase of 10.2%.
The Pension rise was always a certainty; there was no way the Conservatives would betray their base amongst older voters.
The larger-than-expected increase in the Minimum Living Wage strikes me as a political response to the pension rise. Raising the minimum wage at a higher rate than the rise in pensions is sensible politics with an election not far off, staving off any criticism from younger voters about the preferential treatment of pensioners at the expense of working people’s future tax burden. It also helps the Government’s borrowing forecasts if more people on minimum wages are pushed into paying tax.
The Ideological
The issues which will provoke the most ideological debate are the “back to work” initiatives to persuade the long-term sick or those currently claiming benefits back into work.
There is no doubt that long-term sickness and general workforce exclusion are significant issues both parties recognise. The Labour-led Welsh Government also has this near or at the top of its priorities.
The Conservatives have now set out their approach – increasing funding for initiatives to support people to find jobs whilst using the benefits system to try and penalise those who they feel choose not to work.
Labour is now setting its stall out – arguing that investment in the NHS is what’s needed to get people fit for work and investment in skills. This is a rare current example where there is a noticeable policy difference.
Both probably miss the point that workforce non-participation is concentrated in deprived areas where job opportunities are limited and health issues, particularly addiction, are endemic. Declining social and geographic mobility is at the heart of it. I would focus on solving issues around education, addiction and housing, but that is just my opinion.
The Missing
Two essential things were missing.
Firstly, the much-touted cuts to inheritance tax. The inheritance tax issue comes back around just before every budget.
I suspect if you spend any time at your local Conservative club, particularly if it’s in the South East of England, then inheritance tax is the number 1 member complaint. Hence, it will always make it to the top of the “should we or shouldn’t we” list for every Conservative chancellor.
Burdening the country with an additional borrowing deficit to benefit a few core Conservatives in the South East would not have been a smart political move. Hence, it was quietly dropped.
The big elephant in the room was the Government’s spending plans. With a widespread perception of deteriorating public services, a lack of any detail on Government spending commitments was notable. The published statement effectively has overall government spending falling in real terms for the next year or two and no real detail as to how this will be achieved or the impacts. Social Care reform also remains elusive.
Autumn Statement 2023 – The View from Wales
There was little to untangle regarding the specific impact on the Welsh economy. The Government confirmed that there will be two new Investment Zones in Wales: one located across the Cardiff and Newport area (delivered by the South East Wales Corporate Joint Committee) and another focusing on the Wrexham and Flintshire region (delivered by the North Wales Corporate Joint Committee). Along with the existing Celtic Freeport, much of South Wales would now seem marked as a future investment zone. It will be interesting to see how these plans line up and what they can deliver in terms of investment. There could be significant opportunities, but overall business confidence and general economic uncertainty is the short-term concern.
The other discussion topic for business owners in Wales is likely to be the impact of the increase in the minimum wage.
There is a genuine economic debate about whether areas such as South West Wales should have the same minimum wage as more prosperous areas of the UK or whether the recent significant increases have reduced wage competitiveness and, therefore, business profitability and investment in more deprived regions. Many minimum wage jobs in the region will likely be in smaller retail, service, leisure and tourism businesses, many of which have already felt the most significant impact from the cost-of-living squeeze. Passing additional wage increases on to customers may prove difficult, and if they are passed on, it could flow through to another uptick in inflation. Eradicating worker exploitation through minimum wages is a good thing. However, making housing more affordable and changing to the 16 hours per week benefit cut-off may be more effective ways of reducing poverty than blanket increasing the minimum wage.