The FT’s quick guide to the Autumn Statement

Chancellor Jeremy Hunt announced £55bn of tax rises and spending cuts to restore the UK’s public finances.

However, public sector debt as a share of GDP is set to rise on the back of a worsening economic outlook and higher borrowing costs. The country has already entered a recession that is set to last more than a year.

UK output is not set to reach pre-pandemic levels until the end of 2024, in sharp contrast with all other G7 economies, which have already regained the ground lost during the Covid era.

As a result, households face the largest fall in living standards since records began in the 1950s.

Most of the rises in taxes and a big squeeze on public spending are planned for the years after the general election, which must be held by 2024. One of the largest increases in taxation, the freeze in national insurance thresholds for businesses, will take effect from April 2023.

The UK’s economic outlook is bleak . . .

• Gross domestic product is set to contract by 1.4 per cent in 2023;

• The economy is already in a recession that will last more than a year;

• Output is set to recover to pre-pandemic levels only in the last quarter of 2024;

• Real disposable income per person, a measure of living standards, is set to fall this fiscal year at the fastest pace since records began in the 1950s. That will be followed by the second largest fall in 2023-24, taking household incomes to their lowest since 2013-14;

• The unemployment rate is set to rise from the current 3.6 per cent to peak at 4.9 per cent in the third quarter of 2024.

 . . . And worse than other major economies

• All other G7 economies have already recovered to pre-pandemic output levels;

• The OBR’s forecast contraction in UK GDP for 2023 is the worst among the G7, according to the latest IMF forecasts;

• UK inflation is set to average 7.4 per cent next year, higher than in any other G7 economy, according to the IMF.

UK public sector debt is rising . . . 

• Public sector debt is set to peak at 97.6 per cent of GDP by 2025-26, up from the 80.9 per cent that was forecast in March;

• Public sector debt dips only marginally to 97.3 per cent in the fiscal year 2027-28.

 . . . And borrowing is up

• Public sector net borrowing is set to rise to £80.3bn by the fiscal year 2026-27, £48.8bn higher than forecast in March;

• Higher debt interest payments contribute to higher borrowing. In the fiscal year 2022-2023 debt interest payments double to £108.5bn, from the £50.6bn forecast in March;

• As a proportion of GDP, borrowing rises to 7.1 per cent in the fiscal year 2022-23, from 3.9 per cent forecast in March.

In response, the chancellor cut spending and increased taxes

• There is modest fiscal easing over the next year via cost of living support and the government will cap household energy prices for another year from April, albeit at a higher level than currently;

• National insurance thresholds for businesses will be frozen from April 2023;

• The threshold for the 45 per cent top rate of tax was cut from £150,000 to £125,000;

• A windfall tax on energy companies will raise £14bn next year;

• From April 2025, electric cars, vans and motorcycles will begin to pay road tax in the same way as petrol and diesel vehicles;

• From 2023 to 2028 there will be a 45 per cent levy on electricity generators, targeting the excess profits made by renewable and nuclear operators since Russia’s invasion of Ukraine;

• The tax-free allowance for income tax and national insurance will remain at £12,570 until 2028;

• The inheritance tax threshold, which has been at £325,000 since 2009, will be held at this level until 2028;

• The dividend allowance drops from £2,000 to £1,000 next year, then to £500 from April 2024;

• The stamp duty tax cuts introduced by former chancellor Kwasi Kwarteng in September will expire in March 2025;

• Public spending will rise by only 1 per cent in real terms in the next parliament, raising £21bn;

• Capital spending will be frozen in cash terms, raising £14bn;

• As a result of all these measures, by 2027-28 Britain will have a tax burden of 37.1 per cent of GDP, a postwar record.

Source: Economy - ft.com