The Chancellor of the Exchequer, Jeremy Hunt, addressed the House of Commons on 17 November 2022 to give his Autumn Statement. Beginning his speech, the Chancellor said the primary causes of high inflation are global factors; namely the Covid-19 pandemic and Russia’s war in Ukraine. The Office for Budget Responsibility (OBR) is now forecasting that inflation will be 9.1% this year and 7.4% in 2023. It also says the UK economy is now in a recession that will last just over a year, with a GDP expected to fall by 1.4% in 2023 and then increase by 1.3% in 2024. It expects housing activity to slow over the next two years. Against this backdrop, the Chancellor outlined the priorities of the government’s Autumn Budget of stability, growth, and public services, whilst also protecting the most vulnerable. The main points are summarised below.

Stability

  • The top rate of tax (45%) will be decreased from £150,000 to £125,140, meaning more people will be paying the top rate of tax and the income tax personal allowance will be frozen until 2028.
  • All other tax bands were frozen resulting in more people paying more tax as wages rise.
  • The Windfall tax for the energy industry will increase from 25% to 35% from 1 January until March 2028, and a temporary 45% levy will be introduced on energy generators.
  • With half of cars expected to be electric by 2025, from then, electric vehicles will no longer be exempt from Vehicle Excise Duty.
  • Government departments will need to make efficiency savings over the next two years to help tackle inflationary pressures – although the Chancellor has committed that the health budget will be protected, with a strong NHS being a priority of the Prime Minister. The NHS budget will increase by £3.3billion in both 2023 and 2024, with an overall £8billion increased budget for the health and social care system, although he states that ‘the NHS must tackle waste’.

Growth

  • Energy security – The Chancellor outlined the ambitions for the UK in the long-term to have energy independence and energy efficiency resulting in a reduction in energy demand and impact on the climate. To ensure the production of cheap, low carbon and reliable energy, the Government is backing the new Sizewell C nuclear plant which will create 10,000 jobs and provide power for six million homes for 50 years once it is built.
  • Infrastructure – To ensure the UK has good roads, rail, broadband and 5G infrastructure there will be no cut to capital budgets for the next two years. They will then be maintained in cash terms for the next three years. They will not grow as planned but they will still increase. Northern Powerhouse Rail, HS2 and East West Rail will go ahead as planned.
  • Devolution – There will be a focus on local leadership with devolution deals for a mayor in Suffolk, Cornwall, Norfolk and an area in the Northeast. Further devolution deals will be made with the Greater Manchester Combined Authority and the West Midlands Combined Authority.
  • Innovation – The UK will aim to combine technology with financial services, with the Chancellor stating he wants to ‘turn Britain into the next Silicon Valley’.

Support for Households

  • Help with energy bills previously announced by the Government will be extended and by April next year, but at a less generous level.
  • Benefits are going to rise in line with inflation and the government has protected the “triple lock” with state pensions increasing in line with inflation at 10.1%.
  • Rent rises in the social housing sector are to be capped to 7%, having previously been allowed to increase at 1% above the inflation rate.

The Chancellor finished his address by saying that despite the economic crisis emerging with high inflation and energy prices, the plans he had set out were a balanced plan for stability, a plan for growth and a plan for public services.

Commenting on the Autumn Statement, Richard Cook, Senior Director – Economics, said: “The Autumn Statement confirmed £55billion of tax rises and spending cuts, which puts into perspective the difficulties facing the economy, although it’s important to note that most of the spending cuts are delayed until after the next election. The UK’s tax burden is now at its highest level since 1948, placing even more pressure on household incomes. This makes it imperative that inflation starts to come down over the next 12 months and the OBR’s forecasts are encouraging in this respect.

What is also encouraging is that the OBR is expecting the UK economy to start growing again in 2024, which is a more optimistic outlook than the two-year recession predicted by the Bank of England in early November 2022.

Confirmation that Northern Powerhouse Rail is going ahead is good news. This will improve connectivity between northern towns and cities in the long-term, which in turn can boost productivity and ensure the north makes a greater contribution to the UK economy. The continuing commitment to HS2 and East West Rail is also good news.”

Sarah Hamilton-Foyn, Executive Director, said “Given the pessimistic outlook for the next 12 months, it seems reasonable to expect the housing market to see a decline, although there still remains a clear need to build more homes. It will be interesting to see whether any changes are made to the standard method. Only recently Michael Gove indicated that the Government is still committed to the manifesto pledge of 300,000 homes every year by the mid-2020s. He suggested he was intending to review the system for calculating local housing targets and that new developments should have the consent of local communities. It remains to be seen when such announcements will be made and what the approach will be. In order for council’s to progress their Local Plans there needs to be an end to the uncertainty that has plagued the planning system over the last couple of years. “

“2023 is undoubtedly going to be extremely challenging and I don’t think any of the announcements in the Autumn Statement came as a great shock for anyone. If inflation does start to come down as expected, this will ease the cost-of-living crisis and hopefully mean that we start to see signs of recovery towards to the end of 2023/early 2024.”

If you would like to find out more about the contents of this article, please contact us.