The Chancellor of the Exchequer announced the Autumn Statement on 22 November as a statement “for growth”. This article looks at some of the key changes and how they may impact Wales.
What’s the economic outlook?
The Office for Budget Responsibility (OBR) published its forecasts alongside the Autumn Statement. The OBR highlighted the economy recovered from the pandemic and energy price shock better than expected.
Inflation is expected to remain higher for longer. While inflation has fallen to below 5 per cent, it’s not predicted to return to its 2 per cent target until the first half of 2025 – more than a year later than forecast in March earlier this year.
The OBR highlights that while higher inflation pushes up tax revenue, it also raises the cost of welfare benefits. The UK Government is also paying higher interest rates on debt.
Living standards, measured by real household disposable income (RHDI) per person, are forecast to be 3.5 per cent lower in 2024-25 than their pre-pandemic level. Unemployment is forecast to rise to 1.6 million people by the second quarter of 2025.
What are the key changes?
Some of the key announcements in the Autumn Statement include:
- Cutting the main rate of National Insurance for employees from 12% to 10%, from 6 January 2024.
- For self-employed people, the rate of Class 4 National Insurance will be cut from 9% to 8%. Weekly Class 2 National Insurance contributions will effectively be abolished, from April 2024.
- Increasing the national living wage from £10.42 to £11.44 per hour, increasing Universal Credit and other working age benefits by 6.7% from April 2024.
- Increasing the Local Housing Allowance rate to cover the lowest 30% of rents from April 2024.
- State pensions will increase by 8.5% in April and the ‘triple-lock’ (which increases state pension by the highest of inflation, wage growth or 2.5%) will be kept.
- Establishing two new investment zones in Wales: one in Cardiff/Newport and the other in Wrexham/Flintshire.
- Make full expensing permanent, allowing businesses to offset investments in machinery and equipment against their tax bill.
The OBR analysis points out that while the combined personal and business tax cuts reduce tax burden by 0.5 per cent, the overall UK tax burden is expected to rise in each of the next 5 years to a post-war high of 38 per cent of GDP.
How will this impact Wales?
The cuts to National Insurance are claimed to amount to a £324 average annual tax cut for 1.2 million workers in Wales.
The Welsh Government receives an additional £305 million in Barnett Consequentials, which includes £133 million in resource budget in 2023-24, and an additional £167 million in resource and £5.8 million in capital in 2024-25.
The Finance Minister, Rebecca Evans, said in response to the Autumn Statement::
… the Welsh Government’s resource settlement will reduce by 0.1% in 2024-25 in real terms and our capital budget is down by 6% in real terms. Overall, that is a 1% year-on-year real terms reduction in our settlement.
The Minister welcomed the rise in Local Housing Allowance but labelled the fact that the increase will not come into effect until April 2024 as “unfortunate”.
Ahead of the Autumn Statement, the Minister asked the UK Government for a £20m contribution to coal tip safety and £270m as a consequential of re-classifying HS2 as an England only project. Neither measure was directly addressed in the statement.
Wales specific infrastructure announcements included £1 billion to fund the electrification of the North Wales Main Line and £5.2 million of funding for transport in Monmouthshire.
The two investment zones in Cardiff/Newport and Wrexham/Flintshire are worth £160 million each. Earlier in November, the Economy Minister, Vaughan Gething, said:
… Welsh Government faces major financial pressures and our willingness to proceed with investment zones in Wales is based on an offer from the UK treasury that meets the full expected costs of financing each investment zone.
What about the impact on devolved taxes in Wales?
As with any major UK budget announcement, the OBR has published forecasts on fully devolved taxes and devolved elements of income tax.
Following the Autumn Statement, Welsh rates of income tax (WRIT) are forecast to increase by £189 million in 2024-25 compared to the forecast in March.
Land transaction tax (LTT) receipts are forecast to decline by £32 million in 2024-25 relative to the March forecast.
Welsh Landfill disposals tax receipts forecasts have been revised down, relative to March, by £6 million in 2024-25 onwards.
What’s next?
The Welsh Government is due to publish its Draft Budget 2024-25 on 19 December 2023. The Finance Minister said on 22 November:
The choices made by the Chancellor in this Autumn Statement do not make our choices any easier. Our funding position remains incredibly difficult, and the decisions Welsh Ministers face are stark.
Senedd Research will produce an updated interactive tool to explore the Draft Budget 2024-25, which will set out the Welsh Government’s spending plans for the financial year.
Article by Božo Lugonja, Senedd Research, Welsh Parliament
