Recap - What did the UK Autumn Statement mean for places?

If you missed the headlines from the Autumn Statement last week, you can find a summary below of the policies and what they mean for UK places.

If you want to take a deeper dive into the trends and context for the UK economy and its regions, you can watch ‘Autumn Statement – what does it mean for places?’ with IPM Chief Economist, Christian Spence, and Matthew Davis.

• Catch up on the webinar now
• Or read the highlights below;

Autumn Statement 2023 recap – what does it mean for places?

As ever, the headline-grabbing measures of tax giveaways hide some longer term decisions, such as significant public spending cuts that – should they be carried through – will have a real impact on places and local services. There’s also a delicate line trodden between supporting high street businesses and asking them to carry the burden of new wage uplifts. There is plenty to do in addressing the UK’s structural weaknesses, at a time when there is very little fiscal headroom to experiment and subsidise new approaches.

National Insurance cut by 2%

Workers will take home more of their pay thanks to a drop in NI contributions from 12p to 10p in the pound from 6^th January 2024.

The timing of the new cut – coming in before the end of the financial year – has led many to speculate about the possibility of an upcoming election and the need for electoral freebies before early April. However, away from Whitehall, this measure should help spending power on high streets, particularly for those earning mid to high incomes, who are set to benefit more than those on lower incomes. The average family with two earners at £35,000 benefit to the tune of £900 per year.

For those self employed, a cut of 1% will be received from April, bringing down the NI burden to 8% and closing the gap between self employed and payrolled NI contributions.

Taking NI aside, the current impact of tax reform in this parliament is significantly punitive to workers, particularly for those in the top 60% of earners who have paid more in tax than they have benefited financially from new policies (not the case for the bottom 40%).

Living wage to rise from £10.42 to £11.44

Startlingly, the national living wage will have doubled in cash terms since 2010, moving from £10,500 to £21,000 per year in April 2024. Clearly this is to be welcomed and marks a big shift in politics and national culture in the UK, however it does pose a clear challenge to many high street businesses that employ staff at the living wage.

Although high street based sectors have received benefit from the Autumn Statement, such as the further subsidy for business rates (see below), the set of measures are a double edged sword. Many business representative groups have issued statements that they are disappointed with the new living wage burden falling on their members (without further support) when they’re still struggling with inflation in supply chains and a long business recovery from covid.

Two lost decades of wage growth

The wider picture of wages, outside of the increase to the living wage, is that average weekly earnings will only rise back to 2008 levels by 2028 (in real terms).

This represents 20 years of zero wage growth, compared with the sharp increases we saw from 200 to 2008, when average wages increased by nearly £100 a week in real terms (~18%).

Universal credit tracks inflation but with harsher sanctions

Some may argue that new sanctions bought in for Universal Credit claimants are performative and political rather than practical and good policy. An open sanction for 6 months or more means legal aid and prescriptions are withdrawn, and work placements could be mandatory after 12 months without finding a job.

The UK remains at around 5% unemployment, a success in comparison to many EU states and the US, however these top lines hide structural issues with supply of specific skills and a larger group that decided to leave the workforce after covid and Brexit, for different reasons.

The positive in welfare is that Universal Credit will track inflation at 6.7% and pensions rise at 8.5% thanks to the triple lock.

Inflation down and predicted less than 2% by 2025…

…but food inflation still at 10%

The new inflation figures are encouraging although less optimistic than March 2023 forecasts which pictured inflation down below 1% by next year. A longer, steadier curve will provide the backdrop for the coming months, but food inflation remains stubbornly high at 10%.

While energy costs have come down since the highs of the early Russia Ukraine conflict, food inflation is having a tangible effect on consumer prices on high streets in the hospitality offer that is so vital to modern multifunctional centres. This will continue to be a challenge and hence we’ve had statements from bodies like UK Hospitality that they will continue conversations with the Treasury on future support for the sector.

75% rates relief for retail, leisure and hospitality extended to 2025

One of the most lobbied for cuts amongst the Autumn Statement announcement, the Chancellor confirmed that 75% rates relief would continue for those already benefitting. This removes the cliff edge that was approaching in April 2024, but moves it just another 12 months away into 2025.

The structural issues with this tax are still plain to see. It acts as an effective tax of up to 50% or more on some commercial properties, particularly as rental values have dropped in recent years, and the complexity of the rates system and valuation presents challenges to all involved.

As discussed in the devolution section below, both Greater Manchester and West Mids combined authorities can now retain 100% of the rates raised in their areas, however this will of course be subsidised by Westminster in the first instance.

The other notable good news was that the small business multiplier was frozen.

Full expensing of plant and machinery investment

As promised in previous budgets, the government has moved to allow businesses to expense all investment in machinery and facilities, writing off this expense to reduce its tax bill. This is one of the measures to encourage productivity to rise and businesses to invest in the UK. A welcome move but, as economist Christian Spence noted last week, not one that will ‘move the needle’ on its own.

Investment zone and Freeport benefits extended to 10 years

Both of these policies provide zoned areas in the UK where development and private sector investment is encouraged through the provision of a range of tax breaks and incentives. These incentives have been extended from an initial 5 year timespan now to a full decade.

This is important for those working in these zones and also signals an important national and centralised policy priority to look at encouraging investment with sweetheart deals based on geography. A key modern challenge is in ensuring that the benefits arising from such investment actually stay within the local area and don’t simply move out to other commuter belt areas as expanding workforces choose where to base themselves.

Planning reform for national infrastructure

The UK has a planning issue, one of complexity, nimbyism, cost, and lack of certainty for investors and communities. New measures have been introduced to expedite new significant infrastructure projects through faster consenting, increased engagement, and more resourcing and focus on innovation in the planning system itself.

The headline is a government figure of £600bn of public sector investment, including significant green energy infrastructure and national grid development, which is at risk without the new strategy. The intentions are good but the 64 million dollar question is whether any of this will stick in terms of new planning policy and behaviours. Labour are equally committed to these principals, so perhaps there’s reason to be hopeful for change.

Last months National Audit Office report into infrastructure and planning cited 85% of Levelling Up projects that are due to complete in 2024 have yet to sign construction contracts. So clearly the construction cost inflation of recent months has impacted as well as a challenging planning environment in some cases. A headache that this country could do without, given how much each town and community needs these projects.

Growth projections take a hit

Projections earlier this year had the UK returning to growth above 2% by early 2024. This has been downgraded, with the country only reaching close to 2% by 2026 at the earliest. There is plenty of nuance to the forecasting which, in both cases, points to a period ahead which feels particularly challenging.

Department expenditure slashed in many areas

The projected resource spending in government departments makes for grim reading, look ahead to 2024-2025. Aside from ringfenced budgets like Health and Social Care and Defence, budgets decrease significantly in departments like Transport (8.4bn today to 5.7bn 24-25) and Home Office (16.8bn to 15.5bn), and that’s without inflation factored in.

Many in the political press have question whether this full list of spending will remain under either party, harsher as it is than the core austerity years following the financial crisis. For places, these calculations will be felt on high streets with local government currently challenged for resource (to put it politely). It may be that local noises and media reaction in the coming months determine how politically tenable this direction of travel is, and whether it is merely a calculation made by an incumbent government looking to find money for election goodies and deal with the consequences later.

Devolution continues at pace

The list of regions that have now been agreed a devolution deal has grown still further, to the point that over 50% of England’s GVA is now covered by devolution. It is only rural Cumbria and Cheshire in the North that remain outside of devolved areas.

In practical terms, there is a now a level 4 framework for devolution which encompasses what Greater Manchester and the West Midlands can deliver, including greater control of local transport and skills and a single financial settlement rather than a series of grants. At lower levels, areas like Lancashire enter the devolution discussion with a level 2 deal, and the presumption is that level 2 will apply everywhere; some aspects of control over transport, adult skills budget, and the UK Shared Prosperity Fund.

For full details on all the devolution deals and the powers they grant, see https://commonslibrary.parliament.uk/research-briefings/sn07029/

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