However, some fiscal relaxation may create some new, albeit muted, opportunities
Multinationals should see a gradual recovery in B2C demand, underpinned by some of the measures outlined in the Autumn 2023 statement, with consumer spending likely to accelerate starting in June/July 2024. B2G demand growth, however, is set to remain muted, but a new labor government at the start of 2025 will likely introduce substantial revisions to spending priorities. The extensions of investment support measures should have a positive impact on the investment environment, and multinationals should explore the potential of taking advantage of the capital expensing opportunities beyond 2024.
Overview
- The government introduced its Autumn 2023 statement, outlining some revisions to tax policy and expenditure plans.
- Planned expenditures will also increase by 2.7% for the 2023–2024 period to GBP 1,222.3 from the plan outlined initially in the Spring 2023 statement.
- Despite previous attempts to dispel rumors about planned tax cuts, the final version of the budget unveiled small tax reliefs, such as a 2.0% reduction to National Insurance Contributions (NIC) for employees earning up to GBP 50,000 annually.
- The government also extended the capital investment “expensing,” allowing companies to deduct spending on new machinery and capital equipment, and extended the investment zone program from 5 to 10 years.
- The statement will also increase the minimum living wage by 9.8% from April 2024 onward.
Our View
As FrontierView outlined in its May UK Market Review update, a slower-than-expected pace of borrowing and the beginning of the pre-election period have allowed the government to introduce a small increase to expenditures while remaining committed to the triple lock in pensions. In terms of actual expenditures on goods and services, however, the Autumn 2023 statement does not bring any substantial changes to the budgets of individual ministries, and long-term spending projections beyond 2024 remain just marginally above headline inflation projections. Still, the NIC cuts and increase in the minimum wage should have a small positive effect on demand and support a gradual and soft consumer spending recovery in 2024, despite expectations that nominal wage growth should ease as the labor market continues to cool off.
The Autumn statement has also introduced small cuts to long-term public investments, but the extension of the investment zones program and the capital expensing scheme should have a positive effect on private investments. The latter, however, is unlikely to materialize in 2024, and the effect is likely to be felt more pronouncedly only in 2025–2026. Attempts to consolidate the budget also remain relatively realistic, and the government should be able to meet its targets for 2024, with current revenues and expenditure projections likely to lead to a continued and gradual reduction in the public deficit to around 2.4–2.8% of GDP in 2024. The budget, however, is likely to fall short of the government’s promises of a pro-growth fiscal program, and despite the increase in expenditures, the statement remains fiscally conservative and thus is unlikely to have a profound effect on the Conservatives’ dim re-election prospects in 2024.
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