Autumn Statement 2023 – Overview and Economic Implications for London
On November 22nd, Chancellor Jeremy Hunt released the 2023 Autumn Statement. The Statement’s release comes amid ongoing uncertainty regarding the date of the next general election, as well as concerns about the UK’s fiscal position, the social and economic consequences of the cost-of-living crisis, and ongoing geopolitical flux.
This Statement was meant to present a ‘pro-growth’ agenda centred on tax cuts and lower economic inactivity. Instead, it overlooked several challenges facing the London and UK economies, and risks achieving the opposite outcome. It has not fully addressed London’s needs and challenges, and could have harnessed the city’s competitiveness and potential.
As an example, the ‘levelling-up’ announcements made were framed within a ‘zero-sum’ mindset that to benefit other UK regions, London and the Southeast should not be prioritised. That’s why the announcements relating to levelling-up and devolution did not acknowledge London and its economic role as the nation’s growth engine. Furthermore, cuts to Class 2 National Insurance contributions to employees are more than offset by the additional tax employees will pay due to the income tax bracket freeze to 2028. Low and middle-income Londoners will lose hundreds of pounds. Meanwhile, cuts to Class 4 NICs are likely to benefit Londoners more than those in other UK regions, but do not tackle some of the key challenges self-employed people face – from financial resilience to business solvency.
The increase in local housing allowance (LHA) rates, while welcome, comes on the back of them being frozen since 2020. It was announced alongside a commitment to the pension triple-lock, which would favour pensioners. Londoners, who tend to be younger than the UK on average, are unlikely to broadly benefit from this announcement.
Policies announced to reduce economic inactivity and boost employment tended to underestimate the extent to which genuine long-term sickness and caring responsibilities impede labour force participation. Implementing more stringent conditions to claim benefits risks undermining the health and financial wellbeing of London’s most disadvantaged individuals, at a time when the capital has higher inactivity rates, starkly unequal social outcomes, and a more acute affordability crisis. The rise in the National Living Wage, while welcome, still leaves its level below the London Living Wage. A more generous increase would have better supported financially-disadvantaged Londoners with the affordability crisis.
Some of the announcements that relate to business and investment could prove beneficial for London (e.g., permanent full expensing for machinery and equipment, pooling of pension pots, and extra funding for SMEs and high streets). That said, the amounts committed were modest considering the challenges, and there is a risk that some of the announcements made regarding financial services would lead to further divergence from the EU – which would hurt London’s critical financial sector. By the same token, investments pertaining to infrastructure and skills were modest.
Last but not least, the OBR’s figures reveal that the UK economy should brace for slower growth and more persistent inflation than previously expected. The announced tax cuts suggest further cuts to public spending.While London’s economy is more resilient than the UK’s (and should see a smaller fall in growth as a result), it would nonetheless experience a slowdown. As the city’s inflation rate is usually higher, this would suggest that Londoners are likely to find life less affordable in 2024, with unemployment exceeding 5%. This would indicate that economic and social inequality will remain acutely high in the city, with those of protected characteristics unfortunately suffering the most.
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