Manchester Chamber’s economist points out tax cut that might mean a rise

Even more workers could be pushed into a higher tax band following Jeremy Hunt’s sleight of hand with a 2% National Insurance cut.

That’s according to Subrah Krishnan Harihara, Deputy Director of Research and Information Systems at Greater Manchester Chamber of Commerce.

He said: “The Chancellor’s speech was founded on a series of measures to lower the tax bill. Or were they?

“The centre piece was that the 12% employee NI contribution has been reduced to 10%, effective 6 January 2024.

“But what should be borne in mind – and the Chancellor chose not to mention it – is that wages after NI deductions are subject to tax meaning the reduction in NI would at least be partially offset by a higher income tax bill. The burning issue at the moment, the result of the freeze in income tax thresholds, is the increase in the number of workers who will pay the higher rate of income tax. Today’s announcement on NI could well push even more workers into the higher tax bracket. Other NI related announcements included abolition of class 2 NI contributions and reduction of 1 percentage point for class 4 NI contributions for the self-employed. One issue that has plagued the UK for many years is low levels of business investment. As a measure to unlock business investment, the Chancellor had introduced full expensing in his Spring Budget. In his Autumn Statement today, Mr Hunt announced that full expensing would now become a permanent measure. Mr Hunt hopes there will be a business investment surge but the actual impact could be mixed especially when businesses have to wrestle with higher bills for wages, fuel and energy.

Harihara added: “The Chancellor began his speech with a rallying cry for less government, which is ironic. In his term as Chancellor, the current Prime Minister presided over a significant expansion in public spending albeit to fight the Covid-19 pandemic. That was not small government, it was very much big government. In a similar vein, the Chancellor’s announcements were in the nature of an early pre-election giveaway.

“The Chancellor has capitalised on the extra fiscal headroom he has. However, with the economy expected to flatline and the cost of living crisis still a live issue, it is questionable how much headroom he will have next spring for his real pre-election giveaways. With today’s announcements, debt is expected to reach 94% of GDP. And if the Chancellor has to resort to increased borrowing to fund other pre-election giveaways, many of his party MPs may not be as willing as they were today to cheer him on.”