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Roses and a gift | Accounting | Chancellor's Autumn gifts have some sharp thorns

Chancellor’s Autumn gifts have some sharp thorns


There were tax cuts for working people and British business in Chancellor Jeremy Hunt’s ‘Autumn Statement for growth’ but behind the headlines, it wasn't all rosy.

1st Dec 2023
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In my last column, I looked ahead to the challenges that Chancellor Jeremy Hunt was facing in the Autumn Statement. At the time, I wrote that most experts were not expecting too much in the way of tax cuts, so I’ll admit I was slightly surprised by the national insurance cuts and other treats the Chancellor announced in his 22 November pre-Christmas giveaway. 

The Chancellor proudly announced the largest ever cut to employee and self-employed national insurance (NI), alongside the largest ever cash increase to the National Living Wage and the second largest cash increase in the state pension. But, as the dust settled over the next few days, Hunt’s gifts, whilst welcome to those who will benefit from them, were rather tempered by the reality that because of the “stealth taxes”, the overall tax burden would continue to increase for most people.

The Chancellor giveth and the Chancellor taketh away

As many commentators have pointed out, fiscal drag, caused by tax and NI thresholds which have been frozen since 2021 (and are due to stay frozen until 2028), is likely to have a bigger effect on the tax we pay and draw more people into paying tax, or push them into higher rate tax bands than the Autumn Statement's giveaways.

That’s not even including the higher taxes we’ll all be paying as a result of the huge inflationary increases seen on food and many other bills, and the hit to our pockets caused by sky-high energy and fuel prices.

Sadly, it means that for most people, despite the Autumn Statement having some seemingly generous measures, the reality is that the impact on our wallets will likely be negative.

The government heralded it as an Autumn Statement for growth, that would deliver on their commitment to cut taxes – rewarding and incentivising work as part of their long-term plan to grow the economy. But the shadow chancellor and many experts suggest that the tax burden is still higher than it has ever been. Whilst many workers will undoubtedly benefit from lower NI rates, and potentially from higher minimum wages, there will be a sting in the tail.

Austerity in all but name

One thing that got next to no mention in the Autumn Statement was public spending. Although there was some extra money for HMRC to pursue tax debtors (many of whom are on low incomes or owe very small amounts), this was ringfenced, so unfortunately can’t be used to improve services. 

There was no extra money for councils and the vital public services they provide: courts, prisons, further education, local government, housing, children’s services, adult social care and others despite the unprecedented demand most services face and the impact of high inflation and high costs on the government money they rely on.

In fact, whilst the increase to the National Living Wage will be good news for those who receive it, a lot of those workers are employed in social care and children's services, so it will likely further increase the pressure on councils. 

The Institute for Fiscal Studies (IFS) claims that the tax cuts are in effect being paid for “almost one-for-one by increasing the real-terms squeeze on public service spending.”

We’ve already had several councils effectively declare themselves bankrupt, the latest being Nottinghamshire City Council. Whilst accepting that previous financial issues have contributed to the problem, the council said that it was facing the "most challenging financial environment that anyone can recall".

Nottinghamshire City Council also said it's experienced an “increasing demand for adults and children’s social care as well as increased homelessness presentations”.

After huge cuts in the 2010-2015 austerity period under Osborne’s Chancellorship, it seems that rather like the rise in stealth taxes, austerity has crept back up on us. Whether this is deliberate or simply an unintentional effect of the Chancellor's policies, it looks like it is going to be a difficult winter for many public sector services and the people who rely on them.

Rewarding work but punishing the poor

As often with fiscal statements, some key points were in the details and there were mixed opinions on what the Chancellor was trying to achieve and whether he will succeed. 

Whilst the announcements to boost growth by making full expensing permanent were welcomed by most, many smaller businesses are unlikely to see a huge benefit from it as they don’t have huge IT, machinery or equipment costs anyway. 

The Chancellor is hoping that the changes to benefits and tax cuts for workers will encourage more people back into work to help boost growth. But many businesses may, like councils, struggle to pay the higher National Living Wage required, which could make it harder for them to take on staff. The cut to NI was only for employees or the self-employed, not for employers so that may further disappoint them.

As the lifeblood of the British economy, the self-employed small business owners are often more innovative and find ways to work despite the conditions they face, but although they may save on their NI, their costs and taxes are still likely to rise. 

The freeze on business rates and some movement towards dealing with late payments are likely to be welcomed, but whether they go far enough is unclear, and the lack of information on any energy support for non-domestic customers will see many businesses struggling with massive bills compared to this time last year.

For those not in work, the increase to benefits in line with the September inflation rate may be of some comfort as will the unfreezing of the housing allowance. But countering that good news would be the worry that there were no further announcements of cost of living support beyond the existing measures due to end in April 2024. The situation does not appear to be getting better, according to the Trussell Trust and Joseph Rowntree Foundation, Universal Credit claimants are already £35 short of the money they need each week to live on.

The Chancellor said the “best way to tackle poverty is through work”, and some of the measures announced should make it more rewarding for people to work if they can. However, there are many people unable to work and it’s hard to see how introducing more sanctions will help them. These sanctions could include being denied free NHS prescriptions, access to legal aid and taking benefits away from people who are deemed to be not engaging with a Jobcentre’s plans to get them to work.

Many workers have benefitted from the increased flexibility of being able to work from home, and some people not working currently may be more likely to be able to work remotely. But many low-paid and temporary or zero-hours roles do not offer that flexibility and for people with complex needs, the threat of sanctions could be very frightening.

Must do better

Whilst Jeremy Hunt was full of jokes and smiles at the despatch box, there was little to cheer if you were already struggling with the impacts of inflation on (still) rising food costs, high energy costs and historically high tax burdens. It’s clear that as with most fiscal statements, there were winners and losers, but the overall sense was that although this was trumpeted as a package of measures to boost growth and reward work, it is likely to be those not already in well-paid work who will feel most hard done by.

Replies (4)

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the sea otter
By memyself-eye
01st Dec 2023 11:04

I'm of the opinion that the way to get people back to work is to massively increase the personal allowance - to £15k or even £20k.
Won't happen of course.
Ah well, back to bread and water....

Thanks (1)
By backwoodsman
01st Dec 2023 15:40

There is a stealth tax that never gets a mention - and that's the extra tax and NI that every increase in the National Living Wage brings. Where please is the expected gain to Government from this listed in the Chancellor's figures?
And how can the NLW increase be anything other than inflationary; where does this fit with the claim that bringing down inflation is the Government's primary aim?

Thanks (0)
By Postingcomments
02nd Dec 2023 14:00

The increase of CT to 25% was the nudge I needed to scale down. After this tax season, I absolutely will be getting my fees right down into the basic rate band - and enjoying more time off.

Get this year's tax returns done, then I'll work out how to tell the clients.

Thanks (1)
Replying to Postingcomments:
the sea otter
By memyself-eye
29th Dec 2023 19:30

Yep, too true. I did this two years ago, but packed up altogether. These days I squander? my money on the stockmarket...

Thanks (0)