Jeremy Hunt claims UK economy ‘back on track’ as he announces £20bn tax giveaway

UK chancellor Jeremy Hunt has cut national insurance (the equivalent of PRSI) by two percentage points and made business investment tax relief permanent, as he put a £20 billion (€23 billion) tax giveaway at the heart of his autumn statement.

Mr Hunt claimed the UK economy was “back on track” and that his package of tax cuts would boost growth without imperilling the fight against inflation, which is still more than double the 2 per cent target.

In a highly political statement, Mr Hunt said he would cut the main rate of national insurance by 2 points to 10 per cent from January 6th – the start of what is expected to be an election year – with a cost of about £9 billion.

The other big measure saw Mr Hunt make permanent the “full expensing” capital allowance regime, at a cost rising to £11 billion. He said it would give Britain “one of the most generous tax reliefs anywhere in the world”.

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He also announced plans to sell the UK government’s entire holding in NatWest, the high street bank and owner of Ulster Bank, to the public over the coming year. Referring to Thatcherite privatisations, he said it was “time to get Sid investing again” – a reference to a television advertising campaign of that era.

Rachel Reeves, shadow chancellor, accused the government of presiding over record tax rises because of the impact of its decision to freeze thresholds at a time of high inflation.

However, Mr Hunt claimed that, with inflation falling to 4.6 per cent and with the independent Office for Budget Responsibility showing that debt was on a sustainable path, it was time to take the foot off the fiscal brake.

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“Our plan for the British economy is working, but the work is not done,” he said, as he set out 110 supply-side measures, intended to boost business, bring the sick back to work and get more capital flowing into the economy.

In what he called “the largest business tax cut in modern British history”, Mr Hunt confirmed the government would make permanent the “full expensing” regime for private sector investment.

The scheme, which was due to expire in 2026, allows a company to immediately deduct all of its spending on IT equipment, plant or machinery from taxable profits. Extending it was a priority for business groups.

The chancellor said the measures would increase business investment in the economy by about £20 billion a year within a decade and was “a decisive step towards closing the productivity gap with other big economies”.

Mr Hunt said the UK’s Office for Budget Responsibility considered that Wednesday’s measures would boost gross domestic product and push down inflation. He had previously warned that tax cuts now would fuel inflation.

He added that the OBR expected the economy to grow 0.6 per cent this year and 0.7 per cent next year. This compares with the OBR’s previous forecasts of a 0.2 per cent contraction this year and 1.8 per cent growth in 2024. The Bank of England expects growth to remain flat next year.

In its response, the OBR said the impact of the Autumn Statement measures on output growth were “modest”.

“The chancellor spends this windfall on cuts in national insurance contributions, permanent upfront tax write-offs for business investment, and a package of welfare reforms, which together provide a modest boost to output of 0.3 per cent in five years,” it said.

Referring to the government’s 38.6 per cent stake in NatWest, a legacy of the financial crisis, Mr Hunt said he would “explore options for a NatWest retail share offer in the next 12 months”.

He said this was part of a broader push to “make sure the UK remains one of the most attractive places to start, grow and list a company”. The UK is seeking to stem the flow of British businesses listing in New York, lured by perceived higher valuations and a deeper pool of capital.

He said he would set a new target to keep public spending growth below overall economic growth “while always protecting services”.

The chancellor confirmed that the state pension would rise by 8.5 per cent in April, in what he termed “one of the largest ever cash increases” – and that universal credit and other benefits would increase by 6.7 per cent, in line with September inflation, rather than the lower October level.

Mr Hunt also promised measures “to unlock the building of more homes” in the UK, which has consistently fallen short on government house-building targets.

These include a plan to refund planning fees if local authorities take too long to handle applications, and £32 million to “bust the planning backlog”. Mr Hunt also said he would freeze duty on alcohol, a move applauded by the industry. – Copyright The Financial Times Limited 2023