Transcript: Autumn Statement Reaction

This is an audio transcript of the Political Fix podcast episode: Autumn Statement Reaction

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Claer Barrett
It was very noticeable that there wasn’t really anything in it for young people.

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Lucy Fisher
Welcome to Political Fix, your essential insider guide to Westminster from the Financial Times. I’m Lucy Fisher. The FT’s Claer Barrett there, host of our Money Clinic podcast, on the government’s Autumn Statement. We’ll take a look at the £20bn tax giveaway unveiled on Wednesday and what all this means for the Conservatives’ chances at the next election. Claer joins me now in the studio. Hi, Claer.

Claer Barrett
Hello.

Lucy Fisher
Also here are Political Fix regular George Parker. Hi, George.

George Parker
Hi there, Lucy.

Lucy Fisher
And the FT’s economics commentator, Chris Giles. Hi, Chris.

Chris Giles
Hi, Lucy.

Lucy Fisher
You’re a veteran of how many Autumn Statements, Chris?

Chris Giles
Well, Autumn Statements specifically about 30 and Autumn Statements and Budgets over 50.

Lucy Fisher
Great. So you can put this in some historical context for us.

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Lucy Fisher
Well, it’s always a big event here at the FT, reading the ruins of fiscal events like this. And today, FT HQ Bracken House has been abuzz. There’s been smoke coming off the keyboards, George, hasn’t there, in the parliamentary office? Because in some ways, this felt a bigger Autumn Statement than most. Here’s how Jeremy Hunt sold his plans in the House of Commons today.

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We are delivering the biggest business tax cuts in modern British history, the largest ever cuts to employee and self-employed national insurance and the biggest package of tax cuts to be implemented since the 1980s.

Lucy Fisher
Chris, let’s kick off with you then. Give us the economic picture. What are the headlines?

Chris Giles
Well, I think the headlines are relatively straightforward, although it always is slightly different to what the politicians necessarily say about them. So economic growth has been revised down quite significantly by the Office for Budget Responsibility. Inflation has been revised up quite significantly, again by the OBR. And the combination, particularly of inflation being a lot higher, means that the OBR expects tax revenues to come in a lot stronger than before. So there’s more earnings there, although it’s not real growth or real earnings, but they are in nominal terms, in cash terms higher. So you get £60bn more in tax revenues by 2027-28 than the OBR thought in March. That’s a big number. Pretty much all of that has been given away. Some of it has to go in higher benefits because inflation is higher and pensions quite a lot in higher debt interest because interest rates are higher. And then there’s 20bn of tax cuts. So the tax cuts basically are you’ve been paying more in tax, a lot more, 60bn and we’re going to give you 20bn back.

Lucy Fisher
So, Claire, how will households, individuals, workers, families be feeling after the measures announced today?

Claer Barrett
Well, we’ve got a tax cut that really in reality isn’t much of a tax cut. So those headline rates of national insurance are going to go down and going down by more than expected and a bit of clever expectation management by the chancellor. So the average worker is going to be about £450 better off per year as a result of that change to national insurance, a bit less for self-employed people, about £350. But the highest earners could see their tax bills reduced by up to £750. So it sounds significant, but of course it doesn’t get rid of this problem of fiscal drag at all. The tax thresholds are still frozen. Inflation is pushing up our pay. So more of our pay is being tipped into those higher tax bands. And that’s really, really causing difficult pinch points for families because the £50,000 level at which child benefit starts to be tapered away, you know, that hasn’t changed since 2013. If it had risen in line with inflation, it would be over 65,000 before your child benefit started to be taken away. That’s a really big bone of contention. And then for wealthier FT listeners, perhaps the 100k points when you go through that effectively, you’ve got a marginal tax rate of 62 per cent with income tax, national insurance. That’s because you’re paying back your personal allowance, which again has been frozen. So fiscal drag did put a bit of a dampener on this big flagship announcement. But as you say, the triple lock is protected pensioners. I don’t think anyone doubted that that would be the case. Is that rate benefits? Nothing on inheritance tax, which is interesting because that got a lot of headlines a few weeks ago. And then finally, the speed at which he’s pushing through this tax cut I thought was very nice. Both happened in January. If he can get HMRC to answer the phone.

Lucy Fisher
Well, there’s a lot to unpack there and we’ll come back to some of those measures. But George, just give us your appraisal of whether you think that this is going to move the dial with voters.

George Parker
Well, first of all, I’m glad to say, Lucy, that we’ve got some words being printed in the FT because half an hour before the Autumn Statement, all the power went off in the press gallery, antiquated offices. So that’s one great relief. Look, I mean, how it’s going to go down with voters. There’s two sides to this, aren’t there? And Chris and Claire just described very well. There’s the headline that the Treasury wants, which is a £20bn tax cut, both on the business side, but also more personally on the national insurance side. But just reading some of the initial coverage in the Tory supporting papers, they are all drawing attention to the fact that, yeah, you’re getting a bit off your tax bill, but as the OBR points out, tax burden overall is rising to its highest level since the war to 38 per cent in any event. So I think that’s going to be the the big problem with this. I think the one thing you can say about it, he has avoided doing some of the things which would have made little economic sense. I mean, for example, the inheritance tax cut that Claire mentioned, a lot of the Tory MP got cold feet about that idea. They thought this was actually not a particularly good idea at a time of cost of living crisis, giving money back to people with estates of over £1mn. However, you know, is it enough to move the dial. They’ve obviously left open the possibility that it does move the dial, haven’t they? And as Clare said, the fact they’re bringing forward this national insurance cut to January at least leaves open the option of an early general election in 2024. If the public buy into this, if the polls start to shift. But as we’ve often discussed before, no prime minister in their right mind goes to the polls when they’re at least 20 points behind in their opinion surveys.

Claer Barrett
Might pick a holiday for March then.

Lucy Fisher
Chris, what’s your reading of what this Autumn Statement means for the next election?

Chris Giles
As George says that there’s an option of it happening early, but I think it’s going to happen late for exactly the reasons George says. And then it means we’ll get another budget where we are still pretty tight on the public finances. One thing’s absolutely clear that if the public finances go as the OBR forecasts say, then this government is preparing to have a really quite tough reduction in borrowing, they’ll get the public finances look fine by the end of the decade, but public services would be in quite a difficult spot because about the 20bn in tax cuts is about what it would have cost to protect public services against the additional inflation that the OBR has forecast in this round. And they’ve got nothing, they got a little bit, but they’ve got not very much there. So for the election, I think most likely because we talking billions, they sound like very large numbers, but even the largest number I first said the 60bn number. In big terms, it’s not that large. It’s about 2 to 2.5 per cent of national income. So these things, though they will be noticed, won’t be noticed that much. It won’t absolutely transform anyone’s finances, neither fiscal drag nor giving some of that back in tax cuts, nor will this have a dramatic effect before the election on any public services, either good or bad. So my bet is, it has a relatively small effect. So it looks like the government might well be disappointed that come March, come April, when they were hoping it would have a bigger effect, they might have to do it again in the budget.

George Parker
I must pick up Chris’s point. I don’t think anyone thinks this is going to transform anyone’s finances and obviously not if taxes overall are starting to rise. But I guess the message here is we’re on the right track. The old John Major message in 1992 that you’re signalling a path as Jeremy Hunt put it, to lower taxation.

Chris Giles
And the other party would have a different path.

George Parker
Yeah.

Lucy Fisher
Well, I think there’s another sort of signal to my mind, George, that they are now going for this narrative of we’re on the path to recovery, don’t come back. And they’ve junked the idea of presenting Sunak as a change candidate because a couple of Tory MPs pointed out to me how Hunt seemed to praise some of the former policies of previous Tory administrations. He pointed out how some pupils in England had climbed the international education league tables, thanks to reforms undertaken during David Cameron’s premiership. Similarly praised Iain Duncan Smith for bringing in universal credit again, another of the Cameron legacy. So it does sound like they are moving away from pouring scorn on 13 years of Tory leadership. Perhaps not surprising, having brought Cameron back into the fold. George, do you think there are any traps they’ve laid for Labour? Where can you see Labour disagreeing with what the Tories have announced today?

George Parker
Well, that’s a really good question. Just on your first point, I think it’s fascinating this idea of going back on the whole change narrative and, you know, trashing your own legacy, your own record is never a good idea, as Jeremy Corbyn found out, and to a lesser extent Ed Miliband did, when they tried to distance themselves from Tony Blair. I think you’ve got to own your own track record in government. As far as the Labour party, and this is a really interesting facet I think of this Autumn Statement that you listened to Rachel Reeves, the shadow chancellor, and she was making the point about the fact that growth has been, there’s been more of a static, the taxes have been going up overall, but there wasn’t a single one of the measures in the Autumn Statement which she opposed. And Jeremy Hunt helpfully said at the start that there were 110 odd supply side measures. There wasn’t a single one that she opposed. And we clarified that with her team when they came around to her office, said, is there any of this you’d actually try to undo or will oppose? And frankly, the answer is no. There was one interesting moment where Jeremy Hunt said that he was going to stop the benefits of people who didn’t engage with the state in terms of going back into work when they were on sickness benefits. And there was a lot of jeering from the Labour benches. And I saw one of the Tory officials in the box clenched his fists in joy at the idea that Labour might be about to walk into a trap, which they they set up the idea that Labour was going to be soft on work side benefit claimants as they would try to frame it while they were the tax-cutting party on the side of working people. But Labour made it absolutely clear afterwards they weren’t going to fall into that trap. They said the good thing about Tory traps is they don’t have a big sign over them saying this is a trap and you can find a way of working around them.

Lucy Fisher
Claer, you’ve pointed out how there’s something for everyone across the income spectrum, perhaps in this Autumn Statement. On the one hand, wealthier earners getting a big tax cut. On the other hand, benefits are being operated by the proper traditional September number rather than a lower figure which had been speculated upon. We’ve seen the pension triple lock maintained, the living wage increased and local housing allowance unfrozen. What about the inter-generational unfairness that the Tories are also often a charge of levelled at them? Is there anything we’ve heard today that means that younger voters might be more amenable to the Conservatives?

Claer Barrett
It was very noticeable that there wasn’t really anything in it for young people, especially so as we were expecting there might be something on housing, maybe something on the Help to Buy ISA coming back, or the lifetime ISA, which is a tax efficient savings product, the under 40s to save up a deposit for their first home. Lots of people have been caught in a trap with a lifetime ISA because the property maximum property values capped at 450,000. So they’ve been saving into it for a good 6 or 7 years. Property prices have run away and now if they take their money out, they’re going to be penalised. So lots of angst on Instagram, where I spend a lot of time listening to what younger voters and investors are up to. But on the other hand, there has been widespread relief that fractional investing, that’s investing in fractions of shares, mostly in like the big US tech stocks, where you might have to spend more than £100 buying one individual share more than £300 for some of them, it’s possible on online share trading platforms to have an ISA tax efficient and to buy fractions of shares in these companies. But HMRC had flagged this as something that they thought was against the rules. It’s been a massive story in the FT. We know what our readers care about and certainly the mention of it in the budget documents today that they’re going to pave the way for fractional shares. Some fractional shares traded in ISAs. We’ve taken that to mean not derivatives. So fractions of shares in Apple, Amazon, Google, etc. those are really big ones that people want to trade, is great. But as you say, nothing really there for younger voters. I mean, I don’t know, do the Conservatives care about younger voters? Is this a battle that they sort of think they’ve lost or do you think that we might see something more property and housing-related come the Spring Budget potentially?

George Parker
Well, as Chris says, there’s still time, but you do sometimes wonder. In fact there was a little story in the wind this week that the young Conservative network disbanded itself because they basically had given up hope essentially. They seem to be reading between the lines of what they said. So, no, I think it’s a big problem. And we’ve seen opinion polls recently, YouGov poll, which found only 1 per cent of people aged 18 to 24 were supporting the Tories. So you’d think they would stand any chance of getting that demographic back or starting to rebuild support. They’d have to do more in the Spring Budget.

Claer Barrett
And he did, of course, mention the childcare reforms, which will help people who are a bit older, including my own stepchildren. So please hurry up and bring them in. But there wasn’t much more detail today, and there’s still all kinds of debates going on about how these will be implemented, how the extra hours will actually be paid for, how nursery providers themselves are going to square the cost because, you know, they’re largely in the dark and it doesn’t really instill confidence.

Lucy Fisher
Can I ask you just very briefly on the lifetime ISA reforms, I know you were really beating the drum for the chancellor to do that. Some lesser consumer champions also had raised it. What would be the government’s reasons for not doing it?

Claer Barrett
I think the problem is, when you give a tax break to people who can afford to buy a home that’s worth more than £450,000, it does tend to fall into the inheritance tax buckets of should we be enabling this during a cost of living crisis? I would have been happy if they’d said we’ll remove the penalty for people who can no longer use this product, as it were originally intended, because you’ve got a 25 per cent government bonus. But if you take money out, the 25 per cent charge is applied. So a bit hard sometimes for people to work out that actually the 25 per cent charge on the withdrawal is worth more money than a 25 per cent bonus on the way in, you effectively lose about 6.25 per cent of your savings. I’m looking at you, Chris. I always come to you with my maths queries to check. So that’s, you know, a lot of money you can see in the ISA statistics year on year. Millions of pounds in those fines and penalties is being taken back by the Treasury from the younger people who most needed help to buy a property. So it would have been great if we had at least seen that withdrawn. But enabling a generation of young investors to keep using stocks and shares ISAs to invest in the way that they want to. I think that’s great because it would have been really damaging if they’d had their money moved out of an ISA to a general investment accounts. It would have caused disruption. It’s already caused a lot of fear among investors. And Jeremy Hunt’s budget today was all about investing in businesses and also trying to encourage retail investors to get back into the stock market with that unexpected announcement about the government flogging off its stake in NatWest.

Lucy Fisher
Yeah. Well, let’s pause a moment on that big business tax cut, Chris. I mean, is it fair for the government firstly to try and present it as the biggest business tax cut in modern history, given it’s slightly just offsetting an increase in corporation tax?

Chris Giles
I mean, the truthful answer is no. It’s simply not fair because not only did they raise the rate from 19 per cent to 25 per cent and then give some of that back in higher allowances, which they’ve now made permanent, which is a everyone thinks is a good thing. It’s also, you know, when you look at the number and the extent of George Osborne’s cuts in corporate tax, which might not all come in one go, and I’m sure there’s they’ve been playing silly games on inflation etc etc. But no, is the short answer. We saw big, really big, genuine cuts in corporate tax under George Osborne. Then we saw a very big rise under Rishi Sunak which he announced in 2021. And now we’ve seen some of that rise given back in an increase in business investment allowances. And that will really offset some of the pain of the increased rate of corporation tax, 25 per cent. But, you know, it’s 10bn quid roughly, and it raises GDP five years out by 0.3 per cent according to the OBR. So that is about about 10bn. So it’s 10bn a year and you get roughly a similar amount at a level shift, not as that every year. So that means shareholders get quite a bit. So you spend quite a lot of money. Private investment goes up. Shareholders take some of the money as well. Companies pay less in total. It’s probably a better overall corporate tax system, but really it’s not the biggest cut ever. And he really shouldn’t say things like that because he just gets people going. Well, is it really? And most people say no.

Lucy Fisher
So to conclude, George, is this an election winning fiscal statement?

George Parker
Well, you’ll meet lots of Tory MPs and indeed some people in the cabinet who say if you’ve got £11bn to throw around, should you be spending on full expensing something which the vast majority of voters wouldn’t have a clue what you’re talking about. But I think lots of business groups have been asking for this to put the investment framework on a more permanent footing. And I think something that the FT would welcome. I think this is a responsible thing for a government to do. Only a year out from the election. But does it win many votes? Probably not. But the other thing, do you meet some Tory MPs who are saying they’d much rather on the personal side of tax he’d gone for income tax rather than national insurance. National insurance you can make a very good case for doing national insurance. It’s focused on working people, not necessarily pensioners and people with investments. It’s more targeted. But if you’re looking for a headline-grabbing announcement in the Daily Mail or The Sun one pay off income taxes are much easier thing to do. Also, people frankly don’t understand what national insurance is.

Claer Barrett
I was also very impressed that they explicitly mentioned small businesses. When you look at like the number of businesses in the UK, small businesses really are the backbone of our economy and an issue that I’ve campaigned about for years and years, which is late payments. Small businesses fail in great numbers every year just because they’re waiting to get paid, often by much bigger companies that anything that can be done to accelerate the kind of reforms in that area that the chancellor was talking about, you know, benchmarking big companies that contract with the government on the basis of how well they’re paying their small to medium-sized suppliers. That was the nearest I think I got to clapping in the statement today.

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Lucy Fisher
Now we usually wind up Political Fix by picking those who we think have seen their political stock rise or fall this week. So, Chris, you first. Who are you buying or selling?

Chris Giles
Well, I’m going to take a slightly controversial thing. And even though the chances said the economy’s now turn the corner, it’s looking up. I’m going to sell the UK economy because I think growth being revised down, inflation being revised up is not really the sort of revisions we want to see in an Autumn Statement.

Lucy Fisher
Right. That’s pretty damning. Claer, how about you?

Claer Barrett
Well, I was going to say I’ll sell the idea of buying shares in NatWest in this great tell said privatisation drive. One of my younger colleagues said when we were watching the statement he said, which instantly made me feel very old. But seeing as Chris is very down on the UK economy, I will be more positive about the Australian rules that they could see and bring in to company pension schemes now. Spoiler I’ve written my FT column on this tonight so you can read my views in full in that. But this is the idea of having a pot for life that you take with you between jobs like they do in Australia rather than having a pension provider chosen for you by your employer. And they’ve launched a consultation at the Autumn Statement today which would give workers the legal rights and nominate what pension scheme they want their company to pay their contributions into, which is somebody who’s been calling for greater competition, better customer service in this market. I think that would be something I would buy into in droves.

Lucy Fisher
Great. Well Claer put your article in the shownotes so it’s free to read for Political Fix listeners. George, how about you?

George Parker
Well, I was going to say I’m going to sell Sid, the notional retail investor in shares from the Thatcherite privatisation. I found myself in the huddle after the budget, literally having to explain to my much younger colleagues who Sid was.

Lucy Fisher
I have to admit, I had no idea.

Claer Barrett
Either. I know I’m not.

George Parker
Sid for our younger listeners, by which I mean probably under age of 40, was someone who featured I think it’s British Gas privatisation.

Chris Giles
1986

George Parker
1986. And Margaret Thatcher wanted the whole country to take part in capitalism and buy shares in this soon to be privatised industries that feature people who are going “Tell Sid, tell Sid”. So that’s who Sid is. So I’m selling Sid coz no one’s heard of him. Can I put on hold Jeremy Hunt’s? I thought within the fiscal constraints he’s operating under and the political constraints as well, I thought the Autumn Statement actually struck a pretty good balance between the retail election winning stuff on the personal side of taxes that he had to do and making a responsible decision in terms of some of the serious supply side reforms, including the full expensing thing we were talking about. But the reason I’m putting them on hold is because I’m not entirely sure how the Tory press are going to respond. And if the headlines that we see tomorrow are unfavourable or draw attention to fact, the taxes are still going up and the whole thing looks like a bit of a damp squib politically, then I think one would have to put him into the sell column. And Lucy, how about you?

Lucy Fisher
Well, moving away from the Autumn Statement for a moment and shifting to the Covid inquiry, I am buying Patrick Vallance, the former chief scientific adviser during the pandemic. Extracts from his diaries have been absolutely rocking the inquiry. And what’s really interesting is that so many other of the key players just didn’t keep contemporaneous notes like he did. So he’s the one who is really shaping the narrative and many aren’t able to sort of remember or categorically deny or rule out. They said the things that he charged them as saying. So I suspect there’s a mega book deal coming down the line. Claer, Chris and George, thanks very much for joining.

Claer Barrett
Thank you. Thank you.

Lucy Fisher
And that’s it for this episode of the FT’s Political Fix. As I mentioned, I’ve put free links to subjects discussed in this episode in the show notes. There’s also a link there to Stephen’s award winning Inside Politics newsletter. You’ll get 30 days free. And don’t forget to subscribe to the show. That way you get new editions as soon as they’re released.

Political Fix was presented by me, Lucy Fisher and produced by Audrey Tinline. Manuela Saragosa is the executive producer. Original music and sound engineering by Breen Turner. Cheryl Brumley is the FT’s global head of audio. We’ll meet again here next week.

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