The Autumn Statement has been eagerly anticipated by UK businesses, more so than ever this year given the inflationary pressures and general uncertainty around the economic climate.
The announcement, delivered by Chancellor Jeremy Hunt, was expected to offer significant tax cuts and other measures with the primary intention of fostering economic growth. This pivotal moment in the political calendar gives the government a chance to outline their plans around spending, with businesses being interested in how these plans will impact their operations and financial health.
Organisations will specifically be keen to understand some of the benefits they might gain from the announcement, such as tax reductions, extensions to key schemes, and business rate relief within specific sectors. This type of information could shape a company’s overarching strategy for the next six months. But what was actually in the statement? Let’s find out…
What is the Autumn Statement?
It’s worth starting with a bit of background to give some context to the event itself. The Autumn Statement is a biannual announcement (if you include the Spring Budget too) made by the Chancellor of the Exchequer. It was introduced as a top-level economic update but has evolved over time to go into far more granular detail.
Its purpose is to provide clarity on the government’s fiscal plans, so that individuals and businesses alike can make informed decisions. With the support of the Treasury, and using detailed economic forecasts, the Chancellor sets out a budget for the nation. The Office for Budget Responsibility (OBR) is an independent organisation that serves to hold the government accountable and offer an impartial perspective on what has been revealed.
When was the Autumn Statement announced?
The Autumn Statement typically takes place at some point in November, with the Spring Budget usually being in March. 2023’s Autumn Statement occurred on November 22nd at around 12:30pm, just after PMQs (Prime Minister’s Questions). This year’s biannual approach has represented a return to the norm, after the unusual occurrence of a ‘mini-budget’ (also known as ‘The Growth Plan’) in September 2022.
This plan was presented by then Chancellor, Kwasi Kwarteng, and was seen as a necessary intervention due to high inflation and sluggish economic growth. This ultimately didn’t have its intended impact, and one of Jeremy Hunt’s first acts as Chancellor (when he was appointed in October 2022) was to reverse most of the measures outlined in the mini-budget. Following Wednesday’s announcement, Hunt has now overseen three budgets in total.
How is it different to the Spring Budget?
The Autumn Statement and Spring Budget essentially carry the same purpose but sit at opposite ends of the year. The Autumn Statement is generally seen as the bigger announcement, outlining major policy changes as well as key plans for the forthcoming financial year. Whereas the Spring Budget is more of an update to see whether these plans are on track.
The 2023 Spring Budget included changes related to the likes of VAT & customs duty, pensions/benefits, unemployment, energy bills, and corporation tax. Many people will be interested to see if there’s anything drastically new or ground-breaking to come out of the November 22nd statement, and will perhaps try to uncover patterns across all of Hunt’s budgets.
What did we predict for the 2023 Autumn Statement?
Prior to the announcement being made, many were speculating about what would be included. We had an inkling that the statement would touch upon the following aspects:
Full expensing
The full expensing scheme is essentially a tax break for businesses that was introduced in the Spring Budget. The idea behind it was that businesses could fully deduct the cost of certain capital investments in the year they were made. Under full expensing, they can claim the entire cost of qualifying plant and machinery as an immediate tax deduction. This ultimately means companies have fewer capital expenditures on a significant portion of their assets. This scheme was initially set to run until March 31st 2026, but it was widely expected to be extended.
Minimum wage
Minimum wage, also known as the National Living Wage, is the legal minimum amount companies must pay employees for their work. This is reviewed every year and can vary depending on the age range you sit within. The previous National Living Wage was £10.42 an hour and applied to workers above 23. But this was expected to be increased in the new budget to take into account the cost-of-living crisis.
National Insurance
National Insurance is a monetary contribution that affects the pay packets of millions of people in the UK every month. It is different to income tax, although both are important sources of revenue for the government in terms of maintaining the country’s welfare system. National Insurance specifically helps to fund state benefits such as the NHS, state pensions, and other important public services. The current rate of National Insurance is a 12% deduction on earnings between £12,571 and £50,271. Many people were expecting the Chancellor to cut National Insurance, in an attempt to boost the economy through increased spending.
Economic growth
Back in March the OBR delivered a promising forecast, with a prediction that the UK economy was likely to grow by 1.8% in 2024. It was hoped that this stance would be reinforced as we approach the new year.
What was actually announced?
Most of these predictions did in fact come to pass. Although, sadly, the forecast related to economic growth did not carry the same level of optimism it did back in March. Here are some of the key highlights from the announcement:
- Economic growth forecast more than halved, with the OBR now saying there will be 0.7% growth in 2024, and 1.4% growth in 2025.
- The OBR now predict it will take until 2025 to reach the government’s target of 2% inflation. Inflation was initially expected to be 0.5% in 2024, but it will now likely be 2.8%.
- Full expensing has now been made a permanent tax break for businesses.
- The business rate discount of 75% for those in the retail, hospitality, and leisure sectors has been extended for another year.
- From January 6th, National Insurance will be cut from 12% to 10%.
- From April, the National Living Wage will be increased from £10.42 to £11.44 per hour. This now applies to 21 and 22-year-olds too (rather than just those who are 23 and over).
- From April, state pension payments will be increased by 8.5%.
- From April, Universal Credit will increase by 6.7% to account for inflation.
How will this affect businesses in the UK?
We sat down with Anwen Robinson, Senior Vice President of the Accelerator Business Unit at Advanced, to gain her perspective on the repercussions for businesses. Here’s what she had to say about the Autumn Statement:
“With the OBR scaling back their forecast for economic growth in 2024, it’s quite clear we’re not yet out of the woods with the cost-of-doing business crisis. This will unfortunately need to stay at the forefront of every organisation’s plans. Inflation is proving to be more persistent than many of us were expecting, and these higher costs will inevitably continue to put a lot of pressure on companies across the UK.”
“Many are now predicting the turbulent economic conditions we’re experiencing will last until at least 2028. It’s therefore imperative businesses put a key emphasis on the management of their finances. They must analyse their financial data in great detail to ensure accurate forecasting, appropriate budgeting, and smart decision-making. Finance and procurement teams will play an integral part in eliminating unnecessary spend, while investing in the right tools that drive productivity and streamlined processes.”
Anwen adds; “The overarching impact I can see for organisations off the back of the Autumn Statement is the necessity for operational resilience. Businesses must make sure everything they’re doing is as efficient as possible if they are to continue to thrive.”
What next?
Finance and procurement teams within businesses now have a more complete view of their financial picture for the year ahead, as they know what level of government help they’ll receive and what sort of market conditions they’ll be operating within.
If you’d like to discuss this further and share your perspective on the Autumn Statement, feel free to get in touch. Or if you’d like to read more, here are some resources related to budget announcements: