Yesterday’s Autumn Statement marked the penultimate fiscal event ahead of the next General Election; a clear opportunity for Chancellor Jeremy Hunt to tell the House, and indeed the country, that the economy has “turned a corner” in order to turn the tide on the government’s ballot box prospects.

His approach and announcements were clearly aimed at shoring up support across party factions and appealing to the broadest spread of voters, whilst maintaining the traditional focus on balancing the books.

However, with the Conservative Party still behind in the polls and a tough battle ahead to win the hearts and minds of the electorate, the question remains whether Hunt has gone far enough to impact change in a Statement which has been heralded as “sensible, but underwhelming”.

Here are WA’s five key takeaways from yesterday’s speech:

Balancing the party politics

Hunt’s 110 fiscal measures and focus on the Conservative Party’s success in halving inflation were met with cheers from the backbenchers. The politics of the speech were as much about internal party management as they were about external ratings and Hunt notably applauded the effective representations made by backbench MPs in marginal seats such as Bolsover, Wrexham, Clwyd South, and Keighley. It will become clearer over the coming weeks if this has been enough to unite the party’s right with the mainstream, or if more needs to be done in the months to come to create a unified front for the election.

Tax, tax, tax

Hunt’s heavily pre-briefed “rabbit out of the hat” moment was a headline announcement of a 2% reduction in National Insurance contributions, one of many changes rumoured for inclusion in the run-up. It forms part of a series of tax cuts and “cost of living” measures which are clearly aimed at bolstering household and business finances – including an increase to the National Living Wage to £11.44 per hour in April, a freeze for the small business multiplier, an extension of the Retail, Hospitality and Leisure (RHL) relief, and most notably the permanent introduction of the super deduction for large businesses that was first announced in 2021.

Speculation is already mounting that further tax announcements will follow in a pre-election ‘give-away’ in the Spring Budget, and Hunt was clear that the government’s plan will have an immediate real-term impact, but the job is not complete.

Growth and investment at the centre of Hunt’s plan

Hunt’s statement set a clear direction for the immediate future of the UK’s infrastructure, R&D and life sciences sectors. To drive forward innovation and boost productivity, the government is making changes to simplify and improve R&D tax reliefs, and £4.5bn has been allocated to unlock investment in strategic manufacturing sectors including automotive, aerospace, life sciences and clean energy, changes welcomed across sectors.

Planning reforms to speed up approval processes for electricity networks also made the cut, reflecting Hunt’s previous focus on improving connectivity to the grid. However, with investor confidence shaken by recent announcements of a more “practical and pragmatic” approach to the net zero transition, these measures will need to go some way in giving the private sector the visibility it needs to release investment.

Public sector finances: a trap for Labour?

Notably, there were no big announcements on the departmental funding settlements or stipends for local government. So, whilst measures on wages and national insurance will nominally increase public sector worker incomes, there is a question mark over the future spending available to the public sector.

Politics were at play here too, with Hunt boasting that his party hadn’t buckled to the full demands of unions and spoke of boosting productivity through efficiency reforms via the first ever NHS Long Term Workforce Plan. For Labour, who have also vowed to balance the books on public spending but have close longstanding ties to the country’s unions, this presents an immediate challenge to address in Reeves’ first Budget should they win at the next election.

Regardless, a comprehensive spending review will be needed in Autumn 2024 regardless of general election timings, so Hunt may have just pushed the problem further down the line.

Labour’s response: too little, too late

Fiscal statements are said to be fun for the Opposition, but only when the party opposite is delivering bad news. Today’s statement, which included an array of eye-catching pre-election commitments, intended to create dividing lines with Labour, meant that Shadow Chancellor Rachel Reeves was left with limited room for manoeuvre.

Choosing an economic route, Reeves focused heavily on the “fiscal drag” effect driven by frozen tax thresholds and questioned the real long-term impact of Hunt’s announcements. She also argued that households will hardly feel the benefit of National Insurance cuts, in light of recent council tax increases which have left millions out of pocket. The overarching message: too little, too late to win over voters.

She too is looking ahead to the next election, reassuring Labour MPs that voters will be asking themselves as they reach the ballot box “what has the government done for my family and I in 13 years and are we better off?”. Reeves and her team are already in planning mode for a Labour move to No.11, one where quick fix fiscal changes will be needed to demonstrate immediate impact for households and businesses.

The government will be hoping that today’s package of announcements is enough to also beg the question “what could the government do for me in another five years’ time?” Voting intention polls will give an early indication of this, but time is narrowing for the Conservatives, who now only have one major event left in the form of the Spring Budget before they face the electorate.

Fiscal events are always highly political, and you may be forgiven for thinking we are entering a General Election year – with measures to freeze all alcohol duty until 1^st August 2024, a cut in employee National Insurance by 2%, and the government reconfirming its commitment to the triple lock resulting in a rise in the state pension by 8.5% in April 2024.

There will be lots in today’s speech that is welcomed by business – only 110 measures to work through – especially measures ranging from investment in skills and advanced manufacturing, making ‘full expensing’ tax investment relief permanent, and speeding up local authority approvals for infrastructure projects and business planning applications.

For financial and professional services, I have five key takeaways: 

1. Investment: Both the Government and Opposition continue to vie for the ascendency in who can unlock and promote investment into UK infrastructure and fast-growing science technology businesses. On the back of Labour launching its National Infrastructure Council, as trailed, the Chancellor announced measures to take forward the Mansion House Reforms by committing £250 million to two successful bidders in the Long-term Investment for Technology and Science (LIFTS) initiative, and the intention for the British Business Bank to establish a new Growth Fund. The government will also legislate to implement long awaited Solvency II reforms, and published Lord Harrington’s Review of Foreign Direct Investment, accepting all recommendations. Both political parties see investment as central to their political visions for UK growth. It will continue to be a key political background between the two main political parties.

2. Pensions: Pensions reform continues at a pace, and has the potential to be transformational. Again linked to investment, the government guidance for the Local Government Pension Scheme (LGPS) in England and Wales will be revised to implement a 10% allocation for investments in private equity, and it will consult on how the Pension Protection Fund (PPF) can act as a consolidator to increase opportunities for defined benefit schemes to invest in productive finance. On the retail side, the government’s consultation on a ‘lifetime provider model’ to solve the long-standing problem of small pots, although potentially causing a massive headache for employers, is likely to lead to better outcomes for pension savings. It will also lead to welcome innovation in the sector!

3. The Future of Payments: On the back of the review, also published today, the government will develop a National Payments Vision and Strategy – published next year – to simplify the landscape and bring together strands of concurrent work currently being run out of the Payments Systems Regulator (PSR) and the Financial Conduct Authority (FCA). With regulatory oversight of payments a key topic of discussion at party conferences this year, this is clearly an opportunity to shape the future framework. It is also a recognition that the current dispersion of oversight doesn’t lend itself to a level playing field between established players and market entrants.

4. Economic Regulation: The government continues its focus on ensuring regulators take into consideration growth and innovation. Following the secondary objectives for competitiveness and growth placed on the Prudential Regulation Authority (PRA) and the FCA through the Financial Services Markets Act, the government will consult on measures to strengthen regulators’ ‘Growth Duty’. In addition to bringing the three economic regulators (Ofgem, Ofwat and Ofcom) into the scope of the Growth Duty, the government is also carrying out a broader refresh of the statutory guidance, encouraging all regulators to input. And in the fintech sector HM Treasury has the ambition to ‘reduce their [regulatory] requirements on the industry’ by 10% in 2024.

5. Statutory Instruments: With the Financial Services and Markets Act in place and no significant primary financial services legislation announced in the King’s Speech, the government continues to use secondary legislation, as the vehicle to enact further reforms across the sector. The Autumn Statement supplementary information confirmed that reforms to Solvency II, EU Packaged Retail, and Insurance-based Investment Products (PRIIPs) Regulation, and short selling regulation will be made through statutory instruments.

So, lots to be getting on with across an already packed agenda for financial and professional services.

And one political observation, pointed out to me by a colleague at WA Communications, while we waded through the avalanche of announcements and consultations following the Chancellor’s speech:

The fact that the cut in Employee National Insurance from 12% to 10% that impacts 27 million people is being introduced through emergency legislation from the 6th January 2024, rather than at the start of the tax year on 6th April points towards a May General Election. Maybe it doesn’t, but I will throw it into the mix for debate!