Jeremy Hunt’s tax cuts will add just 0.25% to UK GDP, Bank of England says

In a damning assessment of the chancellor’s fiscal shakeup, the Bank of England said the measures ‘could’ boost national output by a quarter of a per cent

Archie Mitchell
Thursday 14 December 2023 23:52 GMT
Jeremy Hunt hopes autumn statement will make 'really big difference'

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Jeremy Hunt’s tax-cutting autumn statement will add just 0.25 per cent to the size of the economy in the coming years, the Bank of England has warned.

In a damning assessment of the chancellor’s fiscal shakeup, the central bank said the measures “could” boost national output, but that any increase would barely scratch the surface.

It comes after the economy shrank by 0.3 per cent in October alone, meaning any boost from Mr Hunt’s business and personal tax cuts may not even cover that month’s dip.

“Bank staff had provisionally estimated that these additional measures could increase the level of GDP (gross domestic product) by around 0.25 per cent over coming years,” it said in a report.

Jeremy Hunt holding his Autumn Statement for Growth
Jeremy Hunt holding his Autumn Statement for Growth (Getty Images)

Delivering his so-called Autumn Statement for Growth last month, Mr Hunt cut the rate of national insurance by 2 per cent. The chancellor also permanently extended full expensing, a scheme allowing companies to offset investment in machinery and equipment against their tax bills.

Alongside a promised 110 growth measures, Mr Hunt said: “We are delivering the biggest business tax cut in modern British history, the largest ever cut to employee and self-employed National Insurance and the biggest package of tax cuts to be implemented since the 1980s.

“An Autumn Statement for a country that has turned a corner. An Autumn Statement for Growth.”

But alongside his statement, spending watchdog the Office for Budget Responsibility (OBR) revised down its forecasts for Britain’s economic growth, saying the economy will grow by just 0.7 per cent next year, compared with a previous forecast of 1.8 per cent.

Shadow chancellor Rachel Reeves speaking after Jeremy Hunt delivered his autumn statement
Shadow chancellor Rachel Reeves speaking after Jeremy Hunt delivered his autumn statement (PA)

And now the Bank of England has said the impact of Mr Hunt’s measures will be minimal.

Labour accused Mr Hunt of trying to spin the autumn statement as a reward for hard work, pointing instead to 12 “stealth tax rises and menacing forecasts”.

Shadow Treasury secretary Darren Jones told The Independent: “The Tories told us to expect an Autumn Statement for growth. But in it, growth was revised down next year, the year after, and the year after as well.”

The Liberal Democrats said the “no-growth Chancellor is leading the country down a path of economic decline”

Lib Dem Treasury spokesman Sarah Olney told The Independent: “Jeremy Hunt has no strategy in how to break out of this doom-loop of stagnation.“

“The Conservative government has all but abandoned their pledge to grow the economy. Whilst they are in office, there is no path to get the UK growing again.”

The Bank’s forecast came as it held interest rates at a 15-year high after October’s larger than expected fall in GDP.

The Monetary Policy Committee (MPC) met for the final time this year and decided to keep interest rates - which help dictate the mortgage rates set by High Street banks - at 5.25 per cent.

Governor Andrew Bailey said there was still more to be done in the battle to drag inflation further downwards and warned the policy will remain “restrictive for an extended period of time”.

He said: “We’ve come a long way this year, and successive rate increases have helped bring inflation down from over 10 per cent in January to 4.6 per cent in October, but there is still some way to go.

“We’ll continue to watch the data closely, and take the decisions necessary to get inflation all the way back to 2 per cent.”

A Treasury spokesman said: “The Bank of England’s forecast is broadly in line with the OBR’s, which said the long term decisions we made at Autumn Statement deliver the largest boost to potential growth on record.

“We are cutting taxes for hard working people, saving the average employee £450 a year, and backing businesses to invest through the biggest business tax cut in modern British history.”

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