Autumn Statement of intent

Top of the Charts

Afternoon all,

Hot tip in case any of you end up running the Resolution Foundation one day: don’t move house the weekend before a major fiscal event. It’s not good for your sleep/blood pressure/marital bliss. Anyway, what’s done is done – we’re in the new place and Jeremy Hunt’s made his (VERY long list of) announcements.

The headlines since reflect the big tax paradox: tax cuts got announced but taxes overall are going up. The numbers are big on both sides of the ledger. These are the biggest tax cuts since 1988 (Liz Truss’ attempted ones don’t count… due to her swift defenestration). But the tax burden has risen massively, up 4.5 per cent of GDP between 2019-20 and 2028-29 (equivalent to £4,300 per household). That’s what surging debt interest and a sicker/older population gets you.

Anyway for our normal TOTCs special I thought we’d touch on five important points that risk getting lost amid the taxes down/up row – especially given the Westminster circus has swiftly moved on (the only thing they love rowing about more than surging taxes, is surging immigration).

As always you can read our full overnight analysis for more – and as always massive thanks to the team for being so brilliant and so committed to informing public debates at speed. I’m always proud to work with the Resolution team, but never more so than in fiscal event weeks.

Have a great – and hopefully house move free – weekend.


Chief Executive
Resolution Foundation


If you’re going to cut personal taxes, this is a decent way to do it. Leaving aside the wisdom predictable nonsense of cutting taxes pre-election while pencilling in implausible spending cuts after polling day, one of the unusual things about this week is which taxes got cut. Politicians for 40 years have focused on cutting income tax – think Nick Clegg/David Cameron’s personal allowance hikes or Gordon Brown cutting the basic rate – while hiking National Insurance when revenue’s needed. This focuses tax rises on working-age employees, while exempting pensioners or landlords. Jeremy Hunt has broken that habit with the first proper cut to the main NI rate since 1985 (which keenies can read about courtesy of a youthful Evan Davis). Well done him. Double well done for doing it in such a way that slightly reduces the tax dodging incentive for higher earners to be self-employed, as our first chart illustrates.

The main rate of employee NI has been cut by 2p. The Chancellor could have done exactly the same for the self-employed, but he didn’t. Instead they get a 1p cut, combined with the abolition of the flat rate weekly NI charge they face (called Class 2 NICs). This means that those on higher earnings (over £32,000) get a smaller tax cut if they are self-employed than if they are employees. Now don’t start feeling sorry for them – the self-employed already pay lower NI than employees (and hugely so if we take employer NI into account). But the Chancellor has closed the maximum size of that gap from £940 to £750 a year. A small step in the right “high earning IT workers/accountants/lawyers should pay the same tax as everyone else” direction.

Public investment is being cut more than business investment is being boostedThe UK needs to invest more – we’re consistently the worst in the G7. The Chancellor recognised this is a big problem, and it underpins his decision to make the full expensing of plant and machinery permanent. The OBR (and we) think this will boost business investment – and eventually GDP by around 0.2 per cent. This is well worth having, and business investment is at least growing in the OBR’s forecasts. But only slowly, because sorting out the failure of British business to invest is going to need a lot more than a (welcome) tax change.

But far more worrying from a growth perspective is what is happening to public investment. As part of the fiscal fiction of seeing tax revenues rise with higher inflation but pretending that public service spending won’t have to follow suit, big cuts are coming: public sector net investment is now set to decline as a share of GDP by one-third between 2023- 24 and 2028-29. In fact, the decline in government investment in this chart is three times larger £s wise than the growth in business investment between today and 2028-29. If you’re remotely serious about investment and growth this needs sorting.

Why are taxes up but public services still crumbling? There’s a really easy answer to this one. Debt interest. Well, at least that’s the biggest answer and one not getting enough attention, amid lots of wishful thinking from Tories (“if only we made public services more efficient/got rid of Jeremy, taxes could fall”) and Labour (“a sensible Labour government would mean more growth and the tax problem will go away”). The debt interest bill is on course to be over £120 billion by 2028-29 – we’re talking around 4 per cent of GDP, twice what we’ve been used to over the last two decades and the highest sustained level since the 1980s. As our next chart shows, whoever wins the next election should prepare for debt interest costs to dwarf every government department’s budget except for health.

This isn’t normal. On the OBR’s new forecasts, wages in 2028 are set to be no higher than they were in 2008. Which is what a living standards disaster looks like. But even while wages were stagnating in the 2010s, household incomes didn’t actually fall over the course of any of the parliaments (thanks to employment gains/richer pensioners). In fact incomes have never been lower at the end of a parliament than at its beginning in records running back to the 50s. But the biggest inflation shock in four decades, and taxes rising to their highest level in eight, means there is about to be a first time. Disposable incomes are set to be 3.1 per cent lower in January 2025 than December 2019 – a fall worth £1,900 per household. Can we agree to try and not repeat this trick for the next parliament?

The early election chat has got out of control. Westminster being Westminster, all the talk immediately after the Chancellor’s statement was about what it meant for politicians election timing. The employee NI cut being introduced in January has convinced many that it’s full steam ahead for a May election. Well maybe it is. But before you all get carried away I would just gently note that historically something else has been far more important to election timing than specific tax cuts: the polls. Our final chart is a polite reminder that since 1950, no governing party has called an early election when trailing in the opinion polls and won. Early elections were called in 1951 and 1974, but the incumbent lost both. In 1992 and 2015, elections were won by the governing party – despite trailing in the polls by a few percentage points – but they left it as late as possible. So yes the Conservative Party is giving itself the option of a May vote, but preparing for an early election is very different from calling one. Much tighter polls is all that will convince me an election is imminently on the cards.