Autumn Statement: Chancellor Outlines Tough Future as Economy Now in Recession

Chancellor of the Exchequer Jeremy Hunt delivered the Autumn Budget today, and once again, there is a bundle of adjustments and announcements aiming to improve the UK economy that is struggling with high inflation, unsustainable energy costs, and a recession.

The UK government has already reversed much of the economic policy changes introduced by the short-lived Truss government. Today, the government revealed priorities of “stability, growth and public service.”

To quote the Chancellor:

In the face of unprecedented global headwinds, families, pensioners, businesses, teachers, nurses and many others are worried about the future. So today we deliver a plan to tackle the cost-of-living crisis and rebuild our economy … We are not alone facing these problems but today our plan reflects British values as we respond to an international crisis. We are honest about the challenges and fair in our solutions. Yes, we take difficult decisions to tackle inflation and keep mortgage rises down. But our plan also leads to a shallower downturn; lower energy bills; higher long-term growth; and a stronger NHS and education system.

Hunt said while the economy is expected to grow by 4.2% this year, GDP is expected to sin by 1.4% in 2023, and unemployment rising to 4.9% by 2024.

Thus, the Chancellor is “taking difficult decisions,” including raising taxes on “those who have more means” as the top rate becomes payable at £1125,140 versus £150K.

The dividend allowance drops from £2,000 to £1,000 next year and then to £500 from April 2024.

The Annual Exempt Amount for capital gains tax will be reduced from £12,300 to £6,000 next year and then to £3,000 from April 2024.

The council tax will increase from 5% to 3%.

In regards to public spending, the government plans to increase it but more slowly as they adjust to the faltering economy. The one area that will not get cut is defense spending, as the world is quite a bit more dangerous than last year, with Russia invading Ukraine and the Chinese pounding their war drums.

Education is another sector that will see a boost in government expenditures, adding £2.3 billion per year for the next two years.

Energy will see investments almost double while setting a goal of reducing consumption by 15% by 2030.

CI received multiple comments on the new budget from various observers.

Dr. Henry Balani, Head of Industry and Regulatory Affairs at KYC firm Encompass Corporation, stated:

“It’s encouraging that the Chancellor recognised the value of innovation and technology, and that the government will continue to support its growth with increased public funding for research and development and to better integrate technology and science with an already world-class financial services industry in order to turn Britain into ‘the world’s next Silicon Valley’. This is certainly an ambitious, but not entirely unreasonable, goal. Achieving it will require businesses, regulators and decision-makers to be fully aligned on fostering cutting-edge innovation at the highest level. Many businesses will need to overhaul internal infrastructures, which will mean equipping themselves with state-of-the-art cloud technology and tools powered by automation, to drive success now and in the future.

Balani added that it is crucial to hear that changes in EU regulation across digital, finance and more will take place by the end of 2023.

“This approach should allow the UK to refine regulations so that they more appropriately address its unique market requirements, and simultaneously support innovation without hindering the financial landscape.”

The CEO of the Institute for Family Business, Neil Davy, reflected on R&D support as well:

“Today’s statement provides some certainty to businesses at a time in which it is most needed. We are glad that the speculated raid on business has not gone ahead, which will no doubt come as a huge relief for family businesses across the country as was the Chancellor’s decision to keep an eye on the long term by not slashing infrastructure investment and R&D spending. We would have liked to have seen more done to incentivise investment and tackle the ongoing challenges around Business Rates. Meanwhile, the decision to reduce the Dividend Allowance and Capital Gains Tax Exempt Amount will be hard news for those small business owners who already had limited support during COVID and face a long, hard winter”

Paresh Raja, CEO of specialist lender MFS, noted the austerity measures will help to reduce the £55 billion “black hole.”

“However, the announcement will do little to settle the nerves of those in the buy-to-let sector. In the midst of rising interest rates and the aftermath of the mini-budget, buy-to-let landlords are seeing the value of their assets decline, while the cost of borrowing and property maintenance continues to rise. These issues have not been addressed today and are harming the viability of owning a buy-to-let property, which is forcing many landlords to consider selling their properties,” stated Raja. “In fact, according to MFS’ research, 40% of landlords are now planning on selling one or more of their properties in the next 12 months; such an exodus from the market would present an apocalyptic challenge to an extremely competitive private rental sector that is already grappling with rampant demand and a perennial undersupply of homes. Make no mistake, if the Government fails to support buy-to-let landlords in the months to come, such a situation would be catastrophic for renters.”

Jatin Ondhia, CEO of property investment platform Shojin, described the budget as reflecting the fact that Sunak and Hunt are caught between a rock and a hard place that has led to a “Dickensian Autumn Statement, which left little room for any rabbits to be pulled out of the hat.”

“While the main focus of these austerity measures is to attempt to patch up the country’s finances without rattling the markets, the giant elephant in the room is that the housing crisis is deepening,” Ondhia said. “The affordability, quality and volume of homes is worsening for residents, as the upwards pressure on rent is being exacerbated by rising demand and a dwindling supply of homes. This is a national issue and one that can only be solved by taking decisive action to support housing development and boost the delivery of new homes. With housing representing the highest living cost for most, we cannot afford for this ongoing crisis to be once again swept under the carpet in the face of mounting fiscal pressures.”

David Brown, CEO at Hi – a working capital Fintech, criticized the Autumn Statement’s positive spin on innovation and technology, claiming the budget does not reflect this goal.

“For technology to have [a] widespread impact, the Chancellor needs to provide more help to the small and medium-sized businesses building it. Instead of increasing taxes for businesses already struggling to access funding from banks, hire staff and grow revenue, the government should look to support them and adopt their innovations which could bring huge cost savings and efficiencies for government departments.”

Laurent Descout, CEO and co-Founder of Fintech Neo, added his voice for the need of more early-stage Fintech support.

“The UK has cemented its place as a key fintech hub and London is a magnet for dynamic start-ups, but for this to continue, the government must support small and medium sized enterprises which have been instrumental in the success so far. Investments in the fintech sector have already stagnated this year and to remove research and development funding will hurt innovative UK SMEs.”

Murray Campbell, Business Consultant at Fintech, AutoRek – a financial automation software provider, was more supportive in his comments, slamming the prior “mini-budget”  that “blew a £60 billion hole in the economy:

“… Jeremy Hunt and Rishi Sunak’s budget today seeks to balance the UK’s books, reduce inflation to ensure a shallow downturn.  The measured budget should be welcomed by the financial services sector, as it seeks to restore the UK’s financial reputation both at home and internationally – something we will all watch closely with interest.  However, as the OBR has now declared the UK is in a recession, the financial services sector needs to ensure they have the most efficient processes and technology in place to ride the waves of this storm.”

Risk management firm ITRS Group CEO Guy Warren, was more positive as well – stating the Budget delivers a message that the government is taking control of the challenging environment while emphasising the UK is “still a good place to do business.”

“Jeremy Hunt outlined that he wants the UK to become the next Silicon Valley, putting the UK’s technology and financial services sectors at the heart of this transformation. But as ever, the devil is in the detail, and how exactly he plans to do this, is yet to be seen. In the meantime, financial services firms must focus on ensuring they have robust and reliable operations that enhance efficiencies and streamline processes. In doing so, they can strengthen their services and better navigate the recessionary storm.”

The Chancellor’s speech is available here.

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