Madano Analysis - Autumn Statement 2023

Jeremy Hunt, the Chancellor of the Exchequer, has delivered his self-proclaimed “Autumn Statement for growth”.

The Statement sought to demonstrate that the “tough decisions” Mr Hunt has taken over the past 12 months – tax increases and public spending cuts – are paying off. The context was difficult: the Office for Budget Responsibility gave Hunt good news on falling inflation, but also reduced its GDP forecasts, projecting weaker than previously forecasted GDP growth rates for 2024, 2025 and 2026. Labour was quick to attack the Chancellor on these long-term growth concerns.

As a general election draws nearer, the Conservative government is trying to position itself as a responsible economic custodian, one that is now ready to give the private sector the confidence to deliver a dynamic growth economy through taxation cuts and funding for businesses, particularly in higher-risk, more innovative companies in the manufacturing sector. The Treasury has set out a package of “110 economy boosting measures” that it expects will bring £20bn of annual investment into the UK in the next decade.

Pensions / investment landscape

The Chancellor’s Mansion House Reforms will encourage pension schemes to support investment in high-growth UK companies, an announcement that follows Labour’s plans to review the pension system to channel money into UK firms with growth potential. Hunt also announced a simplification of pensions pots with could unlock £75bn of further investment.

In a bid to increase growth, the Chancellor also accepted the headline reforms recommended in the Harrington review, including establishing an FDI ‘concierge service’ to bring in more private investment into UK innovation.

However, Hunt’s headline announcement detailed a £9bn permanent tax break for businesses, including through a permanent extension of the “full expensing” scheme, which allows a company to deduct its spending on equipment, an initiative forecast to boost business investment by as much as 3%

National Insurance contributions were also reduced from 12% to 10%.

Advanced manufacturing

The Chancellor set out further detail on the Advanced Manufacturing Plan, following last week’s announcement that £4.5 billion would be invested in strategic manufacturing sectors:

• Automotive (£2bn)
• Aerospace (£975m)
• Life sciences (£520m)
• Clean industries growth accelerator (nuclear, offshore wind, solar and hydrogen included) (£960m)

The allocation of funding will take effect from 2025 i.e. after the next election. Skills were also mentioned, and the Chancellor allocated £50m of funding for apprenticeships in the engineering sector.

Mr Hunt predicted that these measures would spur an additional £2bn of private funding each year.

Energy

The Chancellor mentioned measures to drive forward the UK’s green growth, though was details-light in terms of actionable regulatory or funding developments. Key mentions included:

• Community benefits for electricity network infrastructure – similar to what Labour has proposed, homes near new energy infrastructure will receive a discount of up to £10,000 over 10 years.
• Electricity networks: connections action plan– the long-awaited follow-up to Nick Winser’s review of transmission and grid infrastructure have been published jointly with Ofgem, moving away from a ‘first come, first served approach.’ Hunt announced projections for grid delay cuts by 90% and £ 90 billion in investment in the next 10 years. Alongside this, DESNZ has published the Transmission Acceleration Plan.[MH1]

Following the Statement, DESNZ has published several follow-up measures, including updated National Policy Statements with planning guidance for nationally significant energy infrastructure projects across electricity networks, gas supply infrastructure, renewables and energy infrastructure.

Devolution & Investment Zones

Hunt announced three new Investment Zones in the East Midlands, West Midlands and Greater Manchester, focussed on advanced manufacturing. Tax relief schemes for these areas, and for freeports, are being extended to 10 years.

Westminster’s devolution of powers to regional authorities continued with today’s announcement that new devolution agreements had been announced including non-mayoral agreements for seven administrations at county level, mostly in marginal seats the Conservatives hope to hold on to at the next election. Devolution has consensus across the house, but Labour will argue that today’s announcements fall short of giving more regional leaders the powers which ‘trailblazer’ regions, Greater Manchester and the West Midlands have over budgets.

What now?

While the Statement sets out measures for boosting growth, there is still uncertainty around how the Government will in practice unlock the investment necessary to tackle key challenges with infrastructural developments necessary to reach net zero. Many of the funding pledges will be implemented (or not) after the next election, putting political pressure on Labour, but creating an element of uncertainty around the medium- and long-term policy picture.

Many Conservative MPs are increasingly retreating into local politics, worried about their jobs. On infrastructure and manufacturing in particular, that will likely mean new struggles over planning and delivery. It is unclear whether or not the Government has the appetite and political capital to enable many of the ambitious projects which it hopes will drive investment to actually be built, particularly in terms of taking on traditional Conservative constituencies in rural and suburban areas.

The election campaign is well and truly up and running, and today’s Autumn Statement shows the Conservative Party’s ambition to signal to the electorate a departure from challenging financial times, a desire to regain its reputation for economic stewardship and reap an electoral dividend from what they hope will be an improving economic situation.