Autumn Statement in Focus

Autumn Statement in Focus

In the UK, yesterday’s primary market focus centred on Jeremy Hunt’s Autumn statement and the subsequent contractionary fiscal measures. This comes as Downing Street look to reduce the budget deficit (which stood at 7.2% of GDP for Q2) and ease the nation’s debt which currently sits at around 95% of GDP. According to Hunt, the “consolidation of ￡55bn” in tax and spend measures will see tax as a percentage of GDP increasing by 1% over the next five years and try to rebalance the nation’s books.

Amongst the measures is a freeze on income tax thresholds meaning that millions of earners will pay more in tax as their wages rise. The Additional Rate (currently at 45p) threshold has also been lowered from its current level of ￡150,000 to ￡125,140 which is of course a marked difference to only a few weeks ago when the Conservative party announced that they would abolish the Additional Rate all together.

Regarding energy, as oil, gas and electricity companies continue to print record breaking profit levels, Hunt raised the energy profits levy from 25% to 35% while also committing to extend it by a further two years to 2028 while a new ‘excess returns’ tax of 40% was laid out. It is thought that these two plans will raise some ￡45 over the next six years, though of course a vital caveat is that the amount generated will be heavily correlated with wholesale energy prices, which are of course subject to meteoric swings.

As energy companies weighed in on Hunt’s plans, so to did households across the country which were keen to discern the extent to which the government would support the rising price of energy. Here, the energy price guarantee came under the microscope as Hunt announced that from April. typical bills will rise from ￡2,500 a year to ￡3,000 as the ￡400 one-off support payment is also set to go. The impact that this could have on household’s disposable income and inflation is considerable, given that according to the ONS, had the energy price guarantee not been in place, inflation would have hit 13.8%, and thus the reduction in government support measures vis-à-vis energy could see inflation rise as consumers spend more on heating bills. Hence, all things being equal, the reduction in support measures will likely see household disposable income further reduce, and likely see an additional reduction in consumer confidence which is pretty much at its lowest level in 50 years.?

Indeed, falling consumer confidence was reflected in a fall in retail sales which came in at 0.3% this morning, below expectations of 0.6%.

Triple Lock Remains Safe and Secure

Despite speculation that pensioners may be hit by a real term reduction, yesterday Hunt confirmed that the triple lock remained safe and secure. The triple lock means that that pensions rise by the highest of inflation, average earnings, or 2.5%, and hence with CPI at 10.1% in April (the month calculations are made), the 12m or so on a full state pensions would see a rise of over ￡1,000 a year, therefore costing the Treasury some ￡12bn.

Living Wage to Increase But Will Fall in Real Terms

Elsewhere, the National Living Wage will now increase from ￡9.50 an hour for over-23s to ￡10.42 from April next year – representing an increase of 92 pence or 9.7%. The highest NLW rate increase was for 21–22-year-olds who will see a rise of 10.9%, though given that inflation is at 11.1% this still represents a real wage fall. The percentage rise in the NLW is however above the average wage increase, which currently stands at around 6% on an annualised basis.

EVs in Focus

The Chancellor also announced that from April 2025 Electric vehicles will no longer be exempt road tax. This follows the government scrapping the ‘plug-in grant’ earlier in the year which enabled motorists to enjoy up to ￡5,000 off the price of a new EV. The increase in road tax revenues is expected to raise some ￡515mn in 2025, ￡985mn in 2026 and ￡1.6bn in 2027, as UK motorists increasingly turn to EVs and the nation as a whole transitions. It’s important too note here that the increase in road tax revenues will likely be offset by the reduction in Fuel Duty rates.

EV owners will also have to pay the luxury car supplement which sees owners of cars over ￡40,000 having to pay an additional tax of ￡355. Notwithstanding technological improvements and the falling price of batteries, given that the majority EVs are listed at a price over this level, many EV owners will also be hit by this tax by 2026.??