SMF responds to Autumn Statement 2023 – The Social Market Foundation
On the Chancellors tax measures, Sam Robinson, SMF Senior Researcher said: Todays cuts to National Insurance rates barely touch the sides of the tax increase from frozen thresholds, meaning they arent really a cut at all for many households. But these changes do represent a welcome rebalancing of personal taxes, shifting away from national insurance towards income tax, which covers a broader range of earnings including pensions and rental income.
Out of all the Autumn Statements measures, full expensing has by far the biggest potential to stimulate economic growth. But given the big price tag associated with the tax cut, and OBR projections that business investment will decrease as a share of GDP, it is vital that full expensing is rigorously monitored to ensure it is as effective in the real world as it looks on paper.
From a fiscal point of view, the tax cuts announced today are built on sand. Most of the headroom the Chancellor used to deliver them was based on departmental spending projections that seem implausibly low and that few people think can be met. To deliver good news today, Hunt may be kicking the bad news down the road.
On the neglect of skills and education, Dani Payne, SMF Senior Researcher, said:
Given the Chancellors ambition to build a world-class education and skills system, it is disappointing to see core school spending per pupil being held flat in real terms, and little else announced to support our young people.
The announcement of modest additional funding for apprenticeships is welcome, however it is unlikely that what the sector really needs is a new pilot scheme, as opposed to a whole-sale reform to bring together our post-secondary education systems, encourage growth in technical education and tackle the unproductive competition between HE and FE that leaves both sectors fighting for pupils and funding.
If the government is to truly grow the supply side of the economy, human capital and skills must be at the forefront of our plan for growth and schools, addressing funding and staffing crises to deliver the next generation of skilled young workers and help those already in work to upskill and retrain.
On measures for long-term unemployment, Jamie Gollings, SMF Deputy Research Director said:
The Chancellors 2.5bn for the long term unemployed, equivalent to roughly 1,500 a head per year, comes with the threat of mandatory work placements and benefits being removed if claimants dont engage. That will send a shiver down the spine of those off work with mental health issues and disabilities, causing them anxiety that could set people back in their recoveries and push them even further from the job market.
Most of those off work with mental health issues and disabilities want to get back into work, and the investment in such programmes is welcome. Working with employers to build forms of employment that can work around peoples conditions, from remote working to stress-freelancing, would help to create those routes. Better to do so with a supportive atmosphere that fosters rather than stifles recovery.
On support for business growth, John Asthana Gibson, SMF researcher said:
The Chancellor taking forward the Mansion House reforms is a positive outcome from todays Autumn Statement. Measures that put more cash from pensions funds deep pockets into growth hungry scale-ups should be encouraged, and the Governments intention to channel greater institutional investment through the British Business Bank, something the SMF has called for, should receive particular praise.
However, high growth business not only need to be well-financed, but well-staffed with talented and capable workers to succeed. A lack of human capital, not the financial sort, is the greatest barrier holding back companies in Britain today, and the Chancellors lack of ambition to develop the UKs skills base with significant investments in education and training will weaken the effectiveness of these measures.
On planning reforms, Gideon Salutin (SMF researcher) and Jamie Gollings (SMF deputy research director) said:
A permitted development right to convert single family homes into duplexes is a good idea on paper. Yet such measures have been tried in a number of cities, including Brisbane, Chicago, New York, and Toronto, without increasing actual housing supply because they were not combined with appropriate targets and strict regulations.
If the government really wants to increase housing supply, it will need to undertake more ambitious planning reform to fast-track large housing projects that maximise the number of units permitted on a lot, and twin this with tight affordability rules to ensure that new capacity genuinely drives down costs.
Other housing measures in the statement are similarly welcome, but not enough to address the crisis. 450m to the local authority housing fund to deliver 2,400 new homes is a drop in the ocean compared to the scale of social housing waiting lists, while faster processing times may speed approvals but fail to greatly increase stock.
On green investments, Gideon Salutin, SMF researcher said:
The Chancellors announcement of 4.5 billion through 2030 is a welcome move in the right direction, but is too small. By comparison, the US is pouring over 300 billion into green manufacturing, Japan is offering 120 billion in long term bonds.
Our research benchmarking global green investment shows that the UK would need to immediately budget at least 54 billion over the next ten years over 12 times the current offer to match peer countries. The Chancellor has taken a first step by acknowledging the problem, but until he makes larger commitments, the UK will remain a step behind.
On investment zones, Gideon Salutin said, SMF researcher said:
Todays announcement increased the number of investment zones and the length of time they receive subsidies, but failed to increase the money annually being transferred to local authorities. At present, investment zones receive just 16 million annually, increasing average local budgets by just 7.4% according to our research.
Local authorities outside London want to attract more investment, but to do so they need more startup cash. The 16 million cap is too small, and should be boosted by creating a larger funding stream for local authorities or by giving them new financial powers. Extending the program may help reassure private investors, but the major transformations the chancellor is promising cannot be achieved without deeper reform.
On public sector productivity, Niamh O Regan, SMF researcher said:
The UKs public sector productivity has been poor for over two decades, growing just 4% between 1997 and 2018, and so planning to grow this by 0.5% a year, while welcome, is very ambitious. There also appears to be a stark contrast between the Governments plan for boosting productivity in private and public sector.
The Chancellor said that productivity in other countries is higher due to investment, but this diagnosis seems to be limited to the private sector. The Government plans to improve public sector productivity, largely through adopting new technology, to cut bureaucracy and resolve administrative tasks faster for both the police and the NHS. Technology can help, but doing it well will require up-front investment in time and resources. Trying to do it on the cheap is bound to fail.
On support for small businesses, Richard Hyde, SMF Senior Researcher said:
A big impediment to smaller firms investing for growth is cashflow. Without adequate resources at hand investment in capital and workers by entrepreneurs in their small business has to be put off, again and again.
One of the most common and significant constraints on SME cashflow is late payment by customers. It has been estimated that half of invoices issued by SMEs are paid late. The problem has been worsening, with more than 23 billion outstanding and owed to small firms according to the Government in 2022. Research has suggested that as many as 50,000 firms could be going out of business each year because of the culture of poor payment practices in the UK.
The government wants an investment boom in the UK. To achieve that, it is imperative that small firms do not suffer from unnecessary cashflow problems. That is why the announcement in the Autumn statement to use public sector procurement to put obligations on contractors to pay their suppliers on time is welcome. However, it should only be seen as a start. Many businesses in the private sector are late payers too, and these will be unaffected by these measures. A more ambitious agenda is needed.
On the pensions pot-for-life, Aveek Bhattacharya, SMF Interim Director said:
Moving from an employer-led pension system to one where each individual has their own pot for life could help avoid the clutter and inconvenience that many of us have experienced from accumulating multiple often small pots from different jobs. More fundamentally, it could shift the onus for pension savings from bosses to workers, which has the potential to boost engagement, personalisation and value for money.
A forthcoming paper from the Social Market Foundation will explore these issues, and we look forward to informing the consultation announced today.
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SMF responds to Autumn Statement 2023 - The Social Market Foundation