The Autumn Statement that took place yesterday essentially reversed the entire plan that the Liz Truss administration had put in place in her Growth Plan. In the space of 55 days, the UK has gone from around £30 billion in tax cuts to c.£54 billion in tax rises – under the same Party.
The problem was that the Growth Plan as a fiscal stimulus did not work with supply constraints, as it focused on demand deficiency, moving towards becoming inflationary rather than growth-enhancing. In contrast, the Autumn Statement looks to stabilise the issues that were created by Liz Truss and her Growth Plan, with the reaction of the markets being key to understanding whether or not the Chancellor has been successful in doing this.
But what the Chancellor has in fact done, is created an economic environment that paints a torrid picture for the younger public – particularly with the tax rises that impact middle earners more than anyone else, and the OBR reporting that disposable income is to drop by 7% over two years with income dropping to 2013 levels. Pensioners, on the other hand, are receiving a triple lock-protected pension and cold, hard extra cash. A policy that he could have revisited through means-testing, like other support being provided, instead of offering a blanket to all. Rather than supporting the part of the country that drives the economy, adds to it, and provides – he has squeezed them and hung them out to dry.
The cherry on top is in fact that this is not just a short-term look, hard term measures to support the economy driven by a desperate need at the moment. No, this is in fact a long-term outlook, with the caveat that there are even more ‘tougher’ measures to come as and when needed. This has been emphasised by the fact that a large proportion of the implementation has been delayed until 2026 and onwards – meaning after the next General Election.
This is a political budget – not an economic vision. What the Chancellor has successfully done is protect the current Conservative administration, through what tends to appease his MPs and older Conservative voters. This has been obvious in his clear avoidance of using the phrase ‘tax rise’ and shoehorning in threshold freezes – which are synonymous in real terms.
Whilst a lot of the measures that have been announced might have been avoided if we had had a Rishi Sunak administration to start with – without Liz Truss’ poorly thought through and clumsily executed plans – the markets cannot be the only measuring stick the Chancellor focuses on. Currently yes, restoring stability and ensuring that the country can continue to be economically productive is necessary, but there needs to be a forward look into what the administration will do and the approach it will take in the coming years outside of just keeping the markets afloat and functioning.
Ultimately though, young people are being squeezed to recuperate costs and this needs to be addressed. The Government will need to take this into account in future economic plans, and not just focus its own on survival skills. Banking on low youth voter turnout at the next election may well be this administration’s undoing.
Bhav Popat, Senior Account Executive, Public Affairs
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November 20, 2023
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