UK is turning the corner in seeing debt falling and better days ahead for growth

Wednesday 29th November 2023 04:25 EST

Siddhartha Bandyopadhyay is a globally recognised economist specializing in political economy and public policy. Awarded the Duncan Black prize in 2015, his work on electoral incentives and political coalitions is published in top journals, influencing academic courses. Focused on the economics of crime, his research delves into game theoretic modelling, statistical analysis, and cost-benefit evaluations. His extensive contributions span reputable journals, policy reports, and media features. As lead economist on funded projects exceeding £3 million, Siddhartha directs the Centre for Crime, Justice, and Policing, leading the transnational crime theme at the Institute of Global Innovation. Here’s his exclusive Q&A on the Autumn Statement 2023. 


What is the key message the autumn statement conveys this year, which layman may not have understood correctly?


The Autumn Statement tries to convey the message that the UK is turning the corner in terms of seeing debt falling and better days ahead for growth making some tax cuts (in the form of a 2% cut in national insurance contributions and hints of more to come) possible which masks the fact that the outlook for growth is bleak and inflation forecasts are if anything worse than expected.
What will be the potential impact of the autumn statement on the UK economy, especially considering the inflation and cost-of-living crisis? Does it change anything for the middle class?


While the small cut in national insurance contributions is welcome news for many, with inflation people’s real income keeps falling and the average tax burden is the highest since the 1940’s and people including the middle class will struggle with the cost of living. This will also come with no improvement in public services that will adversely affect most people, including the middle class.
What potential economic outcomes do you foresee from the increased investment in employment initiatives? Which sector will possibly see better employment opportunities?


The investment in employment opportunities is welcome, including retraining opportunities for over 50 but many are unable to work because cuts to public spending in real terms have left the NHS unable to see people who are not actively seeking jobs in a timely fashion because of ill-health. Hence, a major cause behind people leaving the labour force has not been addressed.
How do you anticipate the combined impact of NIC relaxations and increased taxes from frozen income bands on families and individuals, considering the contrasting nature of these policies?


The tax burden remains high and continues to grow. These are not contrasting policies, rather the reduction in NI marginally lowers the growth in tax burden given the frozen income bands but the net effect still leaves individuals and families worse off in real terms.
How does the autumn statement fare when it comes to small businesses, especially the hospitality sector and for entrepreneurs?


By making permanent, what is known as full expensing, small businesses, and entrepreneurs in general will benefit. Full expensing allows any investment made for certain categories: IT, plant or machinery equipment to be deducted in full and immediately from the business’ profits. Further, it allows businesses to save 25p in every pound spent on other types of investment. All these are expected to incentivise investment.
What economic factors drove the government's decision to boost long-term sickness support? Is this move a strategic one or election-oriented?


The UK faces a large workforce shortage so there are sound economic reasons for getting people back to work. The punitive measures if people do not purportedly engage with the process may be partly election-oriented. At first glance, many will applaud getting people who are able to work off benefits but a large portion are off work because of their long-term health needs not being met because of long waiting times in the NHS, an issue that is not being addressed.

Does the Budget align with the UK's long-term economic strategy? Would it be right to call this a futuristic budget?


The budget is portrayed by the government as helping towards meeting 5 broad aims outlined by the Chancellor: reducing debt, cutting taxes and incentivising work, bolstering British business, building domestic and sustainable energy and delivering world-class education. There are measures to help people get back to work and some marginal tax relief and British businesses will gain from full expensing. It is not entirely clear how the ambition of world-class education and sustainable energy is being promoted in terms of clear initiatives in the Autumn Statement. It is a budget that on the whole makes some marginal changes without any plans on how to improve public services that are in a precarious state. Admittedly, it is a challenging task for a Chancellor facing gloomy forecasts from the Office of Budget Responsibility to lay out a future vision that tackles these problems but in any case, it is not what one would call a futuristic budget.

How does this Budget compare to previous ones regarding its approach to economic challenges?

This is not a budget in the traditional sense though tax adjustments can be made in the Autumn statement. While there was some hype surrounding possible personal or corporate tax cuts, in actuality there is no real move towards making inflation adjustments leading to a higher tax burden. While there is a hint of tax cuts coming in the future the tax freeze is unlikely to radically change (unless there are political compulsions), given the pessimistic growth forecasts and there is no major point of departure from the last few budgets/Autum statements aside from some incentives to business and the beginning of a plan to get people back to work. 


With elections on the cards, do you think this autumn statement is more politicised for electoral benefits?

Elections inevitably play a role in any government’s decision making and maintaining the triple lock for state pensions may be partly driven by political compulsions. Nonetheless, these will leave the next government with less flexibility to invest in public services if it is to balance the budget. Similarly, the work initiatives are good but the underlying premise of cutting benefits for those who do not engage has a populist streak.

Do you think the next government that comes to power will be able to sustain this budget and its futuristic goals? 

Many in the media have commented that the Autumn statement lays traps by introducing a NI cut and a large increase in state pensions that will leave a new government with little headroom for improving public services or investing upfront to grow the economy and meet its ‘green targets’. These are to an extent true and implicitly assumes the Chancellor does not believe the current government will come back to power. Yet, this assumes that if Labour comes to power, it will not be bold enough to invest for growth (which includes the education sector and for improving productivity by having more people get timely treatment by investing in the NHS) but instead will try to balance the budget year on year. Thus, a new government can meet this challenge by making a cogent case that the needed investment will actually yield higher return in a few years and thus any borrowing is strictly to improve productivity and grow the economy.

What does Britain really need from any ruling party right now or in the future to come back on its feet?


Britain’s productivity and growth have suffered, and public finances are in a precarious state leading to the health and education sectors being in crisis mode, so the ruling party and any government that comes to power will need to invest in improving productivity, this includes a sustainable plan for the health sector as that has caused a considerable portion of people to be less productive or even leave the workforce. Covid also exacerbated the digital divide so levelling up in opportunities through investment in education (including vocational) is also essential if Britain is to become a high growth economy. This may need governments to make prudent and well costed decisions to borrow but with a clear plan on how this will help boost productivity.

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