On Wednesday the 22nd of November Chancellor Jeremy Hunt released his Autumn Statement where he announced a series of significant cuts in National insurance worth £10.4bn by 2027-2028. In addition, the Chancellor announced a corporate tax break on 100% of the cost of investments in machinery which will amount to £11bn by 2028-29 to stimulate long-term growth. What does this all mean for the wider economy though and could these tax cuts be a pre-election giveaway to drum up some Tory support?
There is no doubt that for the working public the most important aspect of the Autumn statement will be the deduction in National insurance from 12% to 10%, the first cut since 1985. However, under the backdrop of the Covid tax rises, such as the six-year freeze in tax brackets coupled with rising nominal wages (amounting to a rise of £45bn), this decrease is relatively insignificant. The Chancellor can cut National Insurance because the targets for debt have fallen and borrowing is now below 3% of GDP and under the “Fiscal rules” this gives him the ability to cut taxes due to the public finances being in a healthier position. Also as the expected rate of inflation was higher than it currently is the real value of spending will be lower than originally forecast giving the Chancellor some leeway in the budget for a tax cut in the run-up to the election. It would be unjust to say that this is merely a ploy by the conservatives to generate some votes as National Insurance is not the typical “people pleaser” when it comes to tax cuts like income tax is.
Whilst it is a tax cut, it will disproportionately benefit young working people as those who don’t work such as landlords don’t have to pay it. The announcement also affects the older, wealthier self-employed such as accountants and solicitors as it stops them from benefiting from favourable self-employed tax rates which works towards making the tax system objectively fairer. With a labour government looking ever more likely to succeed the Conservatives at the next general election, the cut in National Insurance feels more like a touch of sensibility rather than a Hail Mary.
The other major announcement from Jeremy Hunt which concerns the Macro-Economy was the corporate tax break on investments in machinery. This has been largely welcomed by the economic community as whilst in the short term it is likely to cost the government £11bn, in the long term it should stimulate growth and help the UK economy to narrowly escape a recession in the coming years.
The announcement is one of “110 measures” designed to “unlock investment” within Britain over the coming years. It is hoped that the measures will help to improve the UK’s capital stock and by extension reduce the productivity gap that has grown between the UK and its economic counterparts such as EU nations and the US to try and make the UK a more appealing nation for multinational companies and their operations.