Jeremy Hunt had two big challenges when it came to his Autumn Statement today (22 November).
The first: to find something glitzy and feel-good to offer disaffected voters that might just make them feel a little bit brighter in the run-up to an election after a period of truly miserable economic turmoil.
The second: to find something conciliatory to offer disaffected right-wing Conservative MPs who have been steadily losing faith with this particular government and remain furious about last week’s reshuffle and the sacking of Suella Braverman.
It is the first of these offers that is the most eye-catching. After weeks of speculation about inheritance tax, in the end the rabbit from the Chancellor’s hat was a cut to the rate of employee National Insurance contributions (NICs) by two percentage points (double what was trailed last night), from 12 per cent to 10 per cent. Another was cutting self-employed NICs by one point, and axing Class 2 self-employed NICs altogether. This, Hunt said, would save the average employed worker £450 and the average self-employed person £350 in 2024-25.
How much of an impact this will actually have for most voters is another matter. As the Institute for Fiscal Studies was quick to point out, fiscal drag – freezing the income tax thresholds at which various rates kick in, despite inflation – “largely or entirely outweighs the impact” of the headline two-point NIC cut. For both people working full-time on the minimum wage and high earners on £60,000, this so-called stealth tax cancels out the NIC cut entirely, while average earners will only see an additional £36. With inflation still at double the Bank of England’s target, not to mention the ongoing crises in public service, that’s not a particularly compelling overture for voters.
The response to the second challenge is more interesting. Rishi Sunak has been facing increasing pressure from right-wing backbenchers who reluctantly accepted his leadership after the chaos of Liz Truss on the grounds that he could repair the party’s fortunes and the UK’s economic prospects. A year later, growth remains stagnant (the Office for Budget Responsibility forecast in the Autumn Statement makes for grim reading) and the latest polls put the Conservatives on track for an electoral wipeout.
Those backbenchers have been getting restless. In October there were suggestions that letters of no-confidence were starting to be sent into the 1922 Committee by MPs frustrated with the lack of progress. Last week’s sacking of Suella Braverman as home secretary was taken as a sign that Sunak had abandoned the right completely. The anger was fierce, but heated talk of a rebellion was quelled by hints to wait for the Autumn Statement. That was where all the rumours about abolishing inheritance tax came from. Hunt needed to announce measures that would reassure right-wing Tories he and Sunak understood their concerns and were on their side.
Miraculously, even without any changes to inheritance tax he appears to have succeeded, framing his statement around the same key buzzword that defined the Truss project: growth.
Hunt promised no fewer than 110 measures to grow the British economy – a clear response to the wing of the party that argues this is the only solution to the current crisis in living standards and public services. These included many from Liz Truss’s supply-side hit list: promises to fast-track planning applications, financial incentives for freeports and investment zones, welfare reform to get more people into work.
[See also: Jeremy Hunt’s pre-election giveaways won’t compensate for a lost decade]
Most significant of all was the announcement that full expensing would be made permanent, enabling businesses to offset investment made in new machinery and equipment against corporation tax. This may sound somewhat wonkish, but business experts and economists have argued that it is one of the most direct ways to increase low rates of capital investment in the UK and boost growth.
It is this announcement in particular that appears to have staved off a threatened revolt on the right – at least for the moment.
For weeks before the Autumn Statement, the Growth Commission, which Liz Truss set up after leaving office, was agitating for radical action, even publishing its own “Growth Budget”. It seemed to be laying the groundwork for a full-throated attack on Hunt’s priorities. And, indeed, the assessment from its co-chairman Douglas McWilliams today was that the Autumn Statement didn’t go far enough: “The Chancellor has taken a loaf of bread from the taxpayer and given us back a couple of slices.” But fellow co-chairman Shanker Singham upgraded that to “a thick slice of bread”, and cautiously acknowledged in in his analysis that “I think the direction of travel is the right direction of travel”. He continued that there was much more he would like to see happen, “but it’s a start”.
As for Liz Truss, the former prime minister actually tweeted her own semi-endorsement, saying “I welcome extension of full expensing”. While she then reiterated her calls for a corporation tax cutback, it’s still a significant step from Sunak’s predecessor.
I welcome extension of full expensing – which according to @TheGrowthComm increases growth by 1.6% over 20 years. To increase growth more, Corporation Tax should be cut back to 19% which would lead to 3.2% more growth over 20 years.
— Liz Truss (@trussliz) November 22, 2023
Let’s make 🇬🇧 grow again.
#AutumnStatement
Simon Clarke, the levelling-up secretary under Truss and one of the leading free-marketeers in the Tory party, said that while some of the most fundamental challenges to growth were only partially addressed, the Autumn Statement contained “a welcome emphasis on growth”. He called the announcement on full expensing “less sexy but more significant” than the NIC cut.
And the think thanks and economists associated with the free-market right of the party generally seem pleasantly surprised by what was announced today.
None of this is exactly a ringing endorsement of Hunt and Sunak. And, as I’ve written before, the right of the Tory party remains divided itself. (The New Conservatives, for example, have different priorities.) But it does suggest that Hunt did just enough today to stop the party from fracturing further, and give economic liberals on the right hope that they are better off sticking with the Prime Minister than causing more trouble. No one really wants another leadership challenge right now, and this Autumn Statement has gone some way to mitigating the damage of the Braverman sacking, at least for Tories on the Truss wing.
The final signal Hunt sent in terms of party management was that a May election now looks plausible again – as the tax cuts will apply from January, paving the way for a bounce in the polls before spring. That’s still a big risk if, as discussed, voters aren’t really feeling the benefit by then – but it does provide extra motivation for MPs who are still disgruntled to sit tight for now. Things are about to start to get better, the message to potential rebels seemed to go. An election is nearer than you think. Don’t risk messing things up now.
[See also: Punitive welfare reforms won’t help sick Britain]
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