- Written by Brian Wheeler
- Political reporter
Chancellor of the Exchequer Jeremy Hunt announced a larger-than-expected cut to National Insurance in his autumn statement.
The headline rate will fall from 12% to 10% from January – although previous tax changes mean many workers will not be much better off.
Hunt also increased state pensions by 8.5% compared to April, and said Universal Credit would rise by 6.7%.
The UK is expected to narrowly avoid a recession this year, but growth forecasts have been cut sharply.
Hunt used his hour-long speech in the House of Commons to claim that the government had put the economy back on track by halving inflation – the rate at which prices rise – and cutting borrowing.
This means he has scope – within the government’s self-imposed rules – to cut taxes in a bid to boost economic growth, while setting the stage for next year’s general election campaign.
He stressed that the tax break for companies investing in new equipment would become permanent, which he described as “the largest business tax cut in modern history.”
But the percentage of state income paid in taxes is still on track to rise to a 70-year high, according to the Office for Budget Responsibility (OBR).
More about the fall statement
This is because inflation is expected to remain “higher for longer,” the agency added, returning to its 2% target in 2025, a year later than expected in March.
Interest rates will also be higher for a longer period, According to the OBR report. He adds that house prices will grow by 0.9% in 2023 and then decline by 4.7% in 2024.
Speaking after his statement to BBC political editor Chris Mason, Hunt said the tax cuts he announced were “just the beginning”.
“These may not be the main taxes, but they will help grow the economy and increase people’s salaries, and this is how we improve the living standards of families across the country,” he added.
He said the OBR’s downgraded growth forecast was still a “significant improvement” on last year.
Other fall statement announcements include:
- Reducing benefits for the unemployed and people with disabilities who are judged not to be doing enough to find work
- The minimum wage is set to increase by more than a pound to £11.44 an hour from April next year
- Freeze alcohol duty until August next year, with no increase in duty on beer, cider, wine or spirits
- Tobacco duties increased by 2% above the rate of inflation, with duties on hand-rolled tobacco rising by an additional 10% above the rate of inflation.
- Unfreeze Local Housing Allowance to help people pay rising rents
- Extending the 75% business rates reduction for pubs. Restaurants and entertainment businesses for another year
Hunt said he had come up with “110 growth measures”, including £500m for artificial intelligence research, plans for more generous tax breaks for TV and film production and £4.5bn over five years to attract investment into key manufacturing industries.
He also stuck to the government’s “triple” pension guarantee, increasing it in line with average earnings. This means a person on the full state pension would receive just over £17 a week.
But the centerpiece of Hunt’s statement was the two percentage point cut in National Insurance, which applies across the UK.
The Chancellor said the cut – which was double what was expected – would help 27 million people and “meant a person on an average salary of £35,000 would save more than £450 a year”.
It also abolished second-tier National Insurance – a £3.45-a-week tax on the earnings of two million self-employed people.
But Hunt’s decision last year to freeze the income level at which workers start paying National Insurance means millions will be dragged into paying higher rates or forced to pay tax for the first time.
Labour’s shadow chancellor Rachel Reeves said: “Today’s 2p cut will not even remotely compensate for the tax.” [increases] Already put in place by this Conservative government.
“The reality is that taxes will be higher in the next election than they were in the last election.”
She added: “What was revealed today is the full extent of the damage this government has inflicted on our economy over 13 years.”
Conservative MP Kwasi Kwarteng – who was forced to resign as chancellor after his tax cut plans sparked a backlash from financial markets – said Hunt’s statement was a “principled step in the right direction”, which would be welcomed by “core Conservative voters”. .
Writing in the telegraph“Of course, I would have liked to see more tax cuts, but I completely understand why Mr Sunak and Mr Hunt took a cautious approach, given my own experience last year,” he said.
For the SNP, economic spokesman Drew Hendry said: “The Chancellor would like you to think he has pulled a rabbit out of the hat today but in reality all he has done is fool a lot of people’s eyes.”
“Things are still getting worse for people. Inflation is still more than double the target it should be, meaning that prices and costs for people in their homes are still rising by the day.”
The Liberal Democrats also accused Mr Hunt of “deception” and the government of being “out of touch with reality” and “out of touch with ideas”.
Treasury spokeswoman Sarah Olney said: “The Conservative chaos has sent mortgages and tax bills soaring, and today’s announcements won’t even touch on both sides.”