Jeremy Hunt has announced tax cuts for businesses and workers in an “autumn statement for growth” worth £20bn, with a larger than expected reduction in national insurance from January.
In what will be one of his last economic announcements before a general election, the chancellor said a stronger outlook for the public finances meant he could cut national insurance from 12% to 10% and offer firms a tax cut to increase investment, which he described as the largest in modern British history.
But he also laid out a set of economic predictions that show anaemic growth for the next three years, coupled with real-terms spending cuts which critics say will put further pressure on struggling public services.
Hunt said: “Our choice is not big government, high spending, high tax, because we know that leads to less growth not more. Instead, we reduce debt, cut taxes and reward work.”
In a speech focused on growing the economy, Hunt argued the government was moving to the next stage of its economic plan after declaring victory on Rishi Sunak’s primary target to halve inflation this year.
The chancellor said the “largest-ever cut” to employee national insurance would save the average worker £450 a year. The Office for Budget Responsibility (OBR) said this would cost £10bn a year by 2028-29.
He also slashed national insurance contributions for the self-employed, which he said would be worth £350 a year and benefit almost 2 million people.
“If we want people to get up early in the morning, if we want them to work nights, if we want an economy where people go the extra mile and work hard, then we need to recognise that their hard work benefits us all,” Hunt said.
Overall tax levels will continue to rise, however, largely thanks to the chancellor’s decision to continue to freeze the levels at which people start paying tax – leaving inflation to suck more people into the tax system for the first time; a policy known as fiscal drag.
Underscoring the scale of the impact on households, the OBR said that Hunt’s 2p national insurance cut would offset only a quarter of personal tax-raising measures announced by the government since 2021 – which are still on track to rise almost £45bn by 2028.
Meanwhile, the government’s spending on day-to-day items will rise by only 1% a year for the next six years, while investment will be frozen in cash terms.
Responding to demands from business leaders to support investment and boost productivity, the chancellor confirmed a well-trailed permanent extension to so-called “full expensing” – a policy that allows companies to claim tax relief on investment, worth more than £10bn a year.
Rachel Reeves, the shadow chancellor, attacked the Conservatives for presiding over low growth and high taxes. “We all know that working people are worse off under the Conservatives. With growth down, mortgages up, prices up, taxes up, debt up and Mr Speaker, their time is up,” she said.
Hunt also confirmed a rise in benefits and the state pension but said he would penalise those who took the taxpayer for granted with a crackdown on the long-term unemployed. The work capability assessment will be changed to assume that more of those with physical disabilities are able to work from home, while unemployed people who have been claiming universal credit for 18 months will lose work benefits unless they have a good reason.
Acknowledging speculation that he was considering lower increases to save money before the autumn statement, Hunt said he would take a “compassionate” approach amid the cost of living crisis by increasing the size of the total support package to more than £104bn.
Publishing updated forecasts from the OBR, the chancellor said the government was moving to “get the economy back on track” after the Covid pandemic and energy crisis. However, while the economy will avoid a recession this year – with a revision to forecasts for a drop of 0.2%, to growth of 0.6% – the OBR slashed its estimates for 2024 from growth of 1.8% to only 0.7%.
Inflation is expected to remain persistently higher than anticipated in the spring, the OBR said.
Announcing 110 measures to “unlock investment” in Britain, the chancellor said measures taken in the autumn statement would support growth in business spending in the economy by £20bn a year – including steps to speed up planning approvals, subsidies for manufacturing and new investment zones.
Putting forward plans to help grow the economy, Hunt said he would reform and simplify taxes for the self-employed by abolishing class 2 national insurance for almost 2 million people. Small firms will also receive a £4.3bn tax break through a freeze on business rates.
