What to expect in the Autumn Statement

The second most significant date in Chancellor Jeremy Hunt’s diary is fast incoming on 22^nd November. Whilst everyone eagerly anticipates the Autumn Statement update on the state of the country’s finances, it is probably the tax and spending changes that will interest more people.

Importantly, it is set to start at about 12:30pm and so the impact on the market, if any, will happen after the PWLB’s lunchtime setting.

Notably, little information has been released ahead of the Statement, which is suggestive in itself. Usually, if there is going to be anything groundbreaking, there is often forward guidance or ground testing leaks (with the obvious exception of the “Mini” Budget from recent sagas).

Below outlines some of the potential changes, however, there have not been any leaks regarding local authorities specifically, therefore all of the below are likely to have varying secondary impact on Councils:

• Tax Cuts: With the government’s self-imposed (but not self-controlled) inflation target having been met, the Chancellor may wish to use this as justification for cutting taxes ahead of the upcoming general Election. Whilst this would placate members of his own party, the reality is that the government needs as much tax revenue as possible at the moment.
• Inheritance Tax Changes: some ministers have suggested either reduction or scrappage of this tax. Whether Mr Hunt agrees is another question.
• Pensions: The triple-lock on state pensions means increases by the highest of CPI inflation, average earnings or 2.5%. With pressures on central government finances, the triple-lock could perhaps see an amendment to use earnings growth that strips out bonus payments and one-off payments such as that of recent settlements.
• First-time Buyers: A potential expansion of the governments mortgage guarantee scheme to help first time buyers borrow with a 5% deposit.
• Green Stamp Duty rebate: Purportedly, new homeowners who make their properties more energy efficient within two years could receive a partial stamp duty rebate.
• ISAs: Some reports suggest the chancellor may shake up the tax-free individual savings account market.

The Office for Budget Responsibility (OBR) will issue their own assessment of the assorted changes alongside the announcement. This has become an essential part of the budget process, despite only being introduced by the Cameron/Osborne administration back in 2010. The OBR’s assessment will likely tame market reactions and indicate whether the government is adhering to its own fiscal rules.

Avid budget watchers will remember Hunt’s fiscal rule on debt reduction, which mandates that government debt should be forecast to fall as a share of national income between the 4th and 5th years of the forecast period. For the latest forecast, this means the debt-to-GDP ratio must be lower at the end of the 2027/28 financial year than at the end of 2026/27. In the Spring Budget, the government had a marginal headroom of 0.2% of GDP (£6.5 billion) against this target.

Another fiscal rule concerns borrowing limits, stipulating that public sector borrowing should not exceed 3% of GDP in five years' time. This means that the deficit should be forecast to be less than 3% of GDP in the fifth year of the forecast period. As of the latest forecast in March 2023, the government had 1.3% of GDP (£39.2bn) of headroom against this target.

Significant divergence from these rules could add some volatility to the gilt market. However, resolute adherence to these self-imposed rules could help stabilize markets and potentially continue the recent decline in gilt yields.

Please join our Trending Treasury webcast next week for a full update on the Autumn Statement from Nick Keeling & Stuart Jones.