Autumn Statement 2023: How it changes the UK economy

Stamp duty housing tax in the frame for UK Chancellor Jeremy Hunt's Autumn Statement on Wednesday

Many are lobbying for tax cuts in Wednesday’s Autumn Statement – will the Chancellor Jeremy Hunt yield? PA

British Chancellor Jeremy Hunt is set to deliver a business-friendly Autumn Statement on Wednesday, to trigger the extra growth the government seeks to put the economy on a pathway to tax cuts.

Mr Hunt has said his approach would “focus on how we boost business investment and get people back into work to deliver the growth our country needs” with the UK seeking a competitiveness boost.

Prime Minister Rishi Sunak said that now his pledge to halve inflation by the end of the year has been met, attention can turn to reducing taxes and stimulating a faster pace of investment.

Inflation has been slowly driven down by successive rises in interest rates. Last month it fell to 4.6 per cent, having been at 11.1 per cent in October last year.

The economic growth outlook is more troubling at 0.2 per cent in August after falling 0.6 per cent in July. One area to get the economy “fizzing” would be to stimulate a housing market that shows signs of resilience.

Stamp duty

The Chancellor may opt to tweak stamp duty applied to residential property, especially for downsizers and first-time buyers. It is thought most of the measures under consideration would stimulate domestic buyers.

It is possible that homeowners looking to downsize could be exempted from stamp duty.

Some speculate Mr Hunt will extend the mortgage guarantee scheme, which is due to expire next month.

It helps first-time buyers on to the property ladder by encouraging lenders to offer low-deposit mortgages, with the government underwriting some of the risk.

Another tweak to stamp duty could take the form of a rebate for new homebuyers who make required energy efficiency improvements within the first two years of moving in.

Income tax

But while Mr Hunt has indicated he will not be announcing anything that could reignite demand and boost inflation, his deputy, Chief Secretary to the Treasury Laura Trott, on Tuesday said: “The economy is in a very different place to where we were a year ago and we can now focus on going for growth, pushing up the growth rate of the economy and cutting taxes for individuals.”

Cutting income tax with an election year approaching would be the preferred tactic of any politician but there is still a question over whether the Chancellor has the headroom to do it.

Mr Hunt has consistently said he will not make any tax cut that might “fuel inflation”.

In a speech on Monday, Mr Sunak said the government had taken “five long-term decisions” as part of the next phase of its plan for the economy. They were reducing debt, cutting tax and rewarding hard work, building domestic and sustainable energy, backing British business and delivering world-class education.

“We can begin the next phase and turn our attention to cutting tax,” Mr Sunak said.

“We will do this in a serious, responsible way, based on fiscal rules to deliver sound money.”

Full expensing

One area where British business could benefit in the Autumn Statement would be an extension to the full expensing scheme.

Under the scheme, companies can claim 100 per cent capital allowances on qualifying plant and machinery investments.

It also means that for every pound a company invests, its taxes are cut by up to 25p.

This scheme is due to expire in 2026 but it is hoped Mr Hunt will make it permanent, allowing businesses to plan for long-term capital spending.

It is an attractive option for the Chancellor but it will cost £10 billion ($12.54 billion) a year.

Mr Hunt does have some room to lower taxes, given that figures released on Tuesday showed government borrowing in the first seven months of the current financial year was lower than the March prediction.

According to the Office for National Statistics, public sector net borrowing between April and October was £98.3 billion.

While that means borrowing was about £22 billion higher than in the same period last year, it is nearly £17 billion less than the Office for Budget Responsibility (OBR) forecast in March.

When he was chancellor, Mr Sunak pledged to cut a penny off the basic rate of income tax by 2024. While running to be leader of the Conservative Party, one of his aims was to slash income tax by 16 per cent by 2030.

A direct cut to income tax may not happen, but it is possible tax thresholds will be raised.

At the moment, the 40 per cent tax bracket starts at £50,271, a level that's been frozen until 2028. But by raising it, people will have more of their income taxed at the lower 20 per cent rate, placing more money back into household budgets.

Death and inheritance taxes

There has been much speculation that Mr Hunt will cut or even abolish inheritance tax (IHT) completely.

But such a move would be politically divisive. While 50 Conservative MPs are in favour of cutting inheritance tax, others, including two cabinet ministers according to Bloomberg, believe it is the wrong time to reduce the levy, given the cost-of-living crisis.

“There is no doubt inheritance tax is very unpopular and whatever the arguments around equity, it can feel like a penalty on prudence and on saving for one’s family,” said Sian Steele, head of tax at Evelyn Partners.

“Although relatively few estates pay IHT, more modest households are being drawn into its reach every year thanks to the 14-year deep freeze of the NRB [nil-rate band] as property and other asset prices have risen – a trend that is likely to continue if all is left unaltered.

“It is also arguable that, at 40 per cent, the headline rate for those estates that do pay the tax is quite high.”