The Autumn Statement contained many welcome measures. The headlines were dominated by two significant tax cuts – the reduction in National Insurance contributions and the permanent extension of ‘full expensing’ for certain types of business investment.
There was also a raft of less newsworthy but still important supply-side reforms – including measures to speed up planning approvals, rejuvenate capital markets, and help those on benefits to return to work – which are also baby steps in the right direction.
Some other decisions were more questionable. In particular, the further large increases in the national minimum wage are testing the limits of what small businesses can afford at a time when the labour market is already starting to weaken.
The real problems, though, are the three elephants in the room.
The first, of course, is that the tax burden is still going up. The cuts in National Insurance gave back only part of the Chancellor’s windfall from the failure to index the thresholds at which people pay higher rates of tax in line with inflation. And full expensing only returns some of the costs of the large hike in the main rate of corporation tax, from 19% to 25%.
The second is the tight squeeze on public spending from 2025 onwards. This is not unrealistic, especially given the scope for improving public service productivity. But many parts of government are already stretched to breaking point.
The third is the lack of economic growth. Indeed, even the OBR’s low forecasts of 0.6% for 2023 and 0.7% for 2024 were flattered by the surge in net immigration. Digging deeper, per capita GDP is forecast to fall by 0.3% this year and rise by just 0.1% next year.
These three elephants have left an awful lot of mess. Clearing it up will require a relentless focus on boosting the economy's productive potential. Lower, simpler and more predictable taxes will be an important part of that. But there is still a long way to go.
