The Chancellor of the Exchequer today delivered his Autumn Statement to parliament, with 110 measures to “help grow the economy”.
Jeremy Hunt noted that he had taken difficult decisions, and instead of entering a recession the UK economy has grown. "Our plan for the British economy is working. But the work is not done," he said.
Hunt stated that the government has delivered significant economic progress “in the face of global challenges”.
Growth is better than expected this year, according to the Office for Budget Responsibility (OBR), the independent watchdog. The OBR expects the economy to grow by 0.6% in 2023 and 0.7% in 2024. After that, growth is forecast to rise to 1.4% in 2025, 1.9% in 2026, 2% in 2027 and 1.7% in 2028. The figures represent an upgrade for this year, which was expected to see a small contraction, but a sharp downgrade in economic growth forecasts for 2024 and 2025.
Headline debt is now predicted to be 94% of GDP by the end of the five-year forecast period, Hunt said. The OBR forecasts that underlying debt will be 91.6% of GDP next year, 92.7% in 2024-25, 93.2% in 2026-27, before declining in the final two years of the forecast to 92.8% in 2028-29, he added.
This means the government will meet its fiscal target of having debt falling in five years' time, one of the five priorities the prime minister outlined at the start of the year.
The Chancellor noted that the OBR predicts that headline inflation will fall to 2.8% by the end of 2024, before falling to the 2% target in 2025. The latest figure for consumer price inflation is 4.6% for October - down from a peak of over 11%.
Chancellor confirms business tax break made permanent
Hunt announced a widely anticipated decision to make permanent “full expensing” for businesses, at a cost of £11bn a year.
According to the Chancellor, this represents the "largest business tax cut in modern British history".
"It means we have not just the lowest headline corporation tax rate in the G7 but its most generous capital allowances," he added.
Unfortunately, assets for leasing remain excluded from full expensing. The government will continue to consider whether there is a case to extend full expensing to leasing and will publish a technical consultation in due course to seek input on draft legislation. The government will consider consultation responses before reaching any final decision.
Stephen Haddrill, Director General of the Finance & Leasing Association (FLA) said: “We have pressed the Government at length about the need for full expensing to be made permanent, and welcome it’s agreement to do so. Today’s announcement will allow firms to think longer term about their investment needs.
“We also made the case for leasing to be included in the regime. The Government has agreed to publish a technical consultation to seek further input from stakeholders. This is a positive move. Full expensing without leasing does not give firms access to the full range of finance options at the point when they need to be choosing the most effective and efficient option for their circumstances and investment objectives.”
The BVRLA have also been working with HM Treasury and HM Revenue & Customs to make a strong case for leasing and rental to be included in the full expensing regime, commissioning research which demonstrates how this move could drive £1.1bn in additional investments in low and zero emission commercial vehicles.
Toby Poston, Director of Corporate Affairs at the BVRLA, said, “Removing this unfair and out-of-date exclusion would have boosted investment and helped thousands of businesses, especially SMEs, to accelerate their adoption of new cleaner commercial vehicles.
“We are not giving up and look forward to responding to the technical consultation and continuing the engagement with our HMT and HMRC contacts.”
Neil Rudge, MD of Enterprise at Shawbrook commented: “Whilst an improving set of macros has given greater confidence to UK SMEs, who have remained remarkably resilient through a protracted period of tough economic conditions, many businesses will have held off from making significant investments. As rate rises appear to have reached their peak and inflation continues its retreat, the Chancellor has been given some breathing space to give businesses more comfort to unleash capital and commit to more substantial investment projects going forwards; good news both for the business and wider UK economy.
"Making the capital expenditure allowance permanent should pave the way for businesses to commit to more significant investments into plant and machinery. The scheme enables businesses to reclaim 100% of the capital allowances in year one. This full expensing allows companies to write off the full cost of these qualifying investments in one go, which can offset corporation tax liabilities. For businesses working to longer capital equipment replacement cycles, the extension may help to bring forward investment timelines to benefit from the relief. But an indefinite extension to the scheme may be just the catalyst needed to give businesses the confidence to make a sustained and longer-term investment decisions, delivering far reaching benefits to the UK economy.
“For those businesses planning to re-start equipment, plant, and machinery investment programmes that may have been on hold, doing so via asset finance will ensure they can do so in a capital efficient way, whilst also making use of the confirmed allowances. Seeking advice from a broker with good relationships with specialist lenders will support those business leaders who are unsure how to make the most of Government incentives, while choosing the appropriate finance option for their business’s needs.”
Jonathan Andrew, CEO of Bibby Financial Services, commented on why the permanent adoption of full expensing on qualifying capital spending will give SMEs a huge boost in confidence: “We welcome the permanent adoption of 100 per cent full expensing on qualifying capital spending. Particularly given the current turbulent market conditions, this will give small and medium sized enterprises (SMEs) a massive confidence boost and underpin their resilience. It presents an opportunity for SMEs to do something different to stay ahead of the competition, whether by investing in cutting edge equipment that improves productivity or by pivoting their business offering. "
Ed Rimmer, Chief Executive Officer at Time Finance said: "What businesses needed from today’s Autumn Statement were conditions for growth and while there is clearly more to be shared on the Chancellor’s 110 measures to boost businesses, there is cause for businesses to sit up and take notice.
"The Chancellor hailed his tax relief package for business investment as the single biggest business tax cut in modern British history, maximising business investment, increasing productivity and boosting GDP. This is a measure the OBR predicts will create £3bn investment a year.
"For businesses, this is very welcome news, but tax is not the only barrier for businesses looking to invest. There are many businesses that simply don’t have the working capital to invest in growth. The Chancellor suggests that this business tax cut will prevent the need for borrowing, which simply isn’t realistic for businesses, many of which are still battling high overheads. If the Chancellor wants businesses to grow, increase productivity and contribute to GDP, he must recognise that borrowing to invest is a viable business strategy, albeit one that will certainly be boosted by this tax relief package."
Hunt commits £4.5bn to manufacturing up to 2030
Focusing on investment, the Chancellor committed to investment of an additional £4.5bn of support between 2025 and 2030 for "strategic manufacturing". This includes investment in EV manufacturing, aerospace, life sciences like medical research companies, and new green industry firms, he said.
"Taken together across our fastest-growing innovation sectors, this support for manufacturing alone will attract an estimated £2bn of additional investment a year over the next decade," he noted.
Commenting on the £4.5bn investment in UK strategic manufacturing, Mike Hawes, SMMT Chief Executive, said, “Today’s announcement is an unequivocal vote of confidence in the UK’s critical automotive industry. Coming on the back of almost £20 billion committed by the sector in next generation plants and technologies this year alone, it is indicative of the scale of investment such support can leverage and the result of substantial collaboration between Government and the industry.
“This additional Government investment reflects the fact the UK automotive sector has the talent, the innovation and the determination necessary to thrive in the face of fierce global competition. It will deliver benefits not just for the automotive sector but for the whole country in terms of growth, high value jobs and productivity. It also sends a powerful signal that the UK is open for business.”
Lisa Watson, Director of Sales at Close Brothers Motor Finance commented, “More than two thirds (68%) of dealers stated earlier this year that a lack of charging infrastructure is the biggest barrier to drivers buying an electric or hybrid vehicle, so while the Chancellor’s planned investment in electric car manufacturing will be welcome news to dealers and motorists, it doesn’t appear to address the need for infrastructure.
“Adequate investment is needed for the UK to finally step-up its efforts to cater for a shift to alternative fuel vehicles (AFVs). With the 2030 ban having to be pushed back, this will be critical to reaching the revised 2035 target. Despite barriers in place, two-in-three (64%) motorists surveyed would consider buying an electric vehicle, so demand is there should the infrastructure be in place.”
Funding and tax breaks for investment zones and freeports
The Chancellor will also extend financial incentives for Investment Zones and tax reliefs for Freeports from five to 10 years. In addition, he will set up a new £150m Investment Opportunity Fund for the programme.
Additional £500m funding for UK artificial intelligence
The Autumn Statement also included government investment of £500m over the next two years to fund more "innovation centres" to help make the UK an "AI powerhouse".
Rachel Winter, Partner at Killik & Co, commented: “The so-called ‘UK productivity puzzle’ refers to the lack of growth in the output of UK workers since the financial crisis. Economists have not agreed on a cause, but AI has been touted as a possible solution. Better use of automation and artificial intelligence should allow UK workers to produce more.
“In today’s Autumn Statement, the Chancellor spoke of his aim to increase productivity in the public sector by 0.5% per year, and later in his speech, he announced additional funding for the UK’s AI industry. AI will be an incredibly important investment theme for the coming decade.”
Minimum wage rise
On top of cutting the National Insurance rate from 12% to 10%, the Chancellor of the Exchequer confirmed an increase in the national living wage, rising from £10.42 to £11.44 per hour in April next year.
The rise of 9.8% is "the largest ever cash increase" in the National Living Wage, according to Hunt, worth up to £1,800 for a full-time worker.
Mike Randall, CEO of Simply Asset Finance, commented on the impact of the increase in National Living Wage for small businesses: “The increase in National Living Wage will be well received by workers across the country, particularly in the current inflationary environment.
“However, we should not forget that for small businesses it’ll be yet another increase to overheads and present a tough balance for achieving growth alongside an increased payroll. Support to address this increase needs to be top of the agenda for the Government when thinking about the recovery of the UK economy. It’s imperative SMEs receive the right advice, support and initiatives to enable long-term planning, and access to the right financing solutions for them to prosper.”
At the end of his speech, Hunt boldly stated that this was an “Autumn Statement for a country that has turned a corner. An Autumn Statement for growth,” with a package that leaves borrowing lower, debt lower and inflation falling, and the biggest package of tax cuts since the 1980s.
