Jeremy Hunt delivered his Autumn statement this week, with 110 policy measures. The most significant of those was a 2% cut in National Insurance contributions. Roger and Phil ask Simon French, Chief Economist and Head of Research at UK investment bank, Panmure Gordon, whether the main aim of the cuts was to bolster the chances of a win for the Conservatives at the next election? On this week’s podcast Simon says that, political cynicism aside, there is a need to boost growth in the economy, and administering cuts in tax through National Insurance ensures that it is the working population that benefits. But will it make that much difference, when those same people face higher tax contributions through the freezing of the income tax thresholds? A wide-ranging discussion that includes the need for more comprehensive tax reform, plus a snapshot on the economic wellbeing of Phil’s barber.
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[00:00:00] The Y-curve with Phil Dobby and Roger hearing.
[00:00:04] Tax cuts or tax rises?
[00:00:06] Jeremy Hunt's autumn statement claimed to reduce the burden on grafters,
[00:00:11] but overall we're still paying the most tax since the Second World War.
[00:00:15] And there's worse news, higher inflation than expected next year and lower growth.
[00:00:19] The OnePlus, the Treasury's coffers, are growing faster as a result of inflation
[00:00:24] and more people being dragged into higher tax. Proletariat to understand. 110 measures and all this. Yes, it's crazy stuff. No, you're right. I mean, there didn't seem to be much there. It was head-lineable stuff. And even, you know, it's interesting, the papers seem divided on whether they want to just highlight the fact, oh, it's the biggest tax cutting thing, or the fact that there's enormous tax burden. Well, look, there's a lot to talk about in all of this. So let's talk to somebody who knows all
[00:01:40] about it. The man who has devised this before to cuts to try and improve work incentives. And of course, full expensing made permanent to try and include, improve investment incentives. And I think if you're looking at long dated problems with the UK supply response,
[00:03:02] that under investment is where the UK benchmarks
[00:03:06] really badly over a multi-decade view on energy is probably going to be higher this winter than last winter. And so the Chancellor might conceivably, if he was joining us on this podcast, say, look, there's still a very significant cost of living squeeze. I don't want to wait till April to hand improvements in take home pay to UK workers.
[00:04:21] Yeah, thank goodness he's not because he might threaten to do those 110 policy measures. on somewhat arbitrary fiscal rules. But whatever headroom there is, I think the current economic and of course, political climate means that that is more likely to be spent than if you like banked. But you know, a lack of fiscal discipline is not a uniquely British problem. One only needs to Rogers on the what I would describe the pithy phrase of the tyranny of marginal changes. And so how can those both these statements be true that it's a tax cutting autumn statement, which it is, and the tax burden, fiscal stimulus that spooked sterling and gilt markets. A couple of things to say, first of all, we're in a different backdrop while Andrew Bailey is right to be
[00:08:20] cautious, partly self-serving to be that. Now, if that doesn't come
[00:09:43] through, then yes, it will be inflationary. I wish I found 38 billion pounds down the back of the sofa. I've got two young kids, all I find is sticky sweets, but- Worth a look, Lou Simon, you never know. Worth a look, definitely worth a look. But the ONS were, if you like,
[00:11:01] bequeathing the OBR with a larger estimate for the economy.
[00:11:06] So I wouldn't pitch all the blame on the OBR say is that people who are sick should go back to work. But driving disabled people into work, isn't that a bit of a... It's marginal. I mean, none of that's really... I mean, more than moral case. Is it actually going to make... Is it just a pipe dream for it to happen anyway? Well, so look, it's such a dangerous territory for the... It's contentious, absolutely.
[00:12:20] Yeah, absolutely. But...
[00:12:23] We're taking you there. perhaps the whole life or for long periods of time. So I think it's why a relatively rapid response to this big spike has a better chance of success than perhaps if there is always going to be a cohort of people who are unable to work and even compositional changes of remote working, working from home will really not eat much
[00:13:42] into that cohort of people
[00:13:44] who are probably not going to be work ready.
[00:13:47] But it's those always debate on the right ratio of carrot and stick to make that happen. But I think to write this group off as not warranting attention to try and encourage in the back of the workforce, I think is wrong. To the second point on productivity, absolutely right.
[00:15:01] And we are going to be in this debate fored in for the other side of the general election, whoever is in charge of the Treasury, whether Jeremy Hunt, Rachel Reeves or someone else
[00:16:22] could be Nigel Farage if he successfully makes it out of the jungle. They will have this then of course we're going to see productivity decline. Yeah, I think you make a good point, which is that we sometimes look at investment in human capital as difference to investment in physical capital, but they're all part of what is known as total factor productivity. So we need to focus on both. The't translate into a plan to actually get more out of the inputs you put into the public sector. Because if you spend on the public sector in terms of putting in investment, for example, in AI, that is initially going to cost money. That's just not something, again, politically,
[00:19:02] that's greatly acceptable at the moment.
[00:19:03] But it's a bit nebulous as well, isn't it? Everyone's trying to figure out how, you know, globally, and that includes now the United States, which has defied economic gravity for the last two or three years. One of the reasons is that there is an adjustment to be taking place to higher interest rates. And of course, in the investment landscape, that raises the hurdle rate for new investment. Now, any economist worth assault would say,
[00:20:20] if you suggest, if you raise the hurdle right, of course, which is the government deserves very little of the credit for bringing down inflation in the UK I think fewer and fewer, even of the inventors, what about Tory, but anyway. But anyway, there's the opportunity. Let's hang on to the core vote. That says the cynic, not me, just, you know, just thinking about it there. But why wouldn't you, why 2% on national insurance, why wouldn't you be there saying, well, hang on,
[00:23:01] we've got this freeze in tax threshold until 2027, 28.
[00:23:05] I mean, as every year goes by,
[00:23:07] we're all gonna have less money to spend. from capital, returns from savings, etc. And so I think I'm happy from a sort of, you know, trying to reward work in preference to rewards from other forms, with the choice of national insurance. But then also we've talked about earlier in, one of the things that was spoken about and didn't happen was inheritance tax reform. And actually slashing and burning inheritance tax is probably not a very smart move, but actually reforming it to lower the rates, but also limiting the amount that could be pumped into assets that are effectively tax reforms we heard yesterday, and I thought actually, given how expensive full expensing is when you score it in the Autumn Statement scorecard, full expensing is not going to win any vote for the next general election. It really is. If you wanted to devote that kind of money to shamelessly pursuing
[00:27:02] votes, you would have cut VAT, or you would have done something
[00:27:05] a bit more what pollsters call a retail offer on tax. guy runs a barber shop he gets well he basically says he could grow further but he doesn't and I think this happens for a lot of businesses because he doesn't pay VAT he's right on 85 that yeah 85 for whatever it is threshold and he doesn't want to grow the business anymore so if you could get over that and he says but I can't because they don't have to charge you know 20% more
[00:28:22] or you know however it's gonna work out and I'm already the most expensive you of tax simplification hiding in plain sight for the true reformist chancellor out there. And is it Jeremy Hunt when economic conditions calm down? Will it be Rachel Reeves if she takes office? Look, we are crying out for a tax reformist chancellor, but it doesn't set the pulses racing. Certainly not 12 months out from the election.
[00:29:41] Yeah, and that's what they need to do. Well% growth, I've fought it's worth see one and a quarter percent growth. I mean, none of those estimates are for hanging out the bunting. But I do think that in an environment where nominal income is going to go up between six and seven percent, and over that tax threshold where I start paying 60% tax. So I'm putting it into my pension funds, which is... Your hair is going to be cut less often. Exactly. Yeah. Well, I'm not inviting that. I hope you're buying UK mid-cap stocks, not just pumping it into Nvidia. Ooh. Ooh. But I mean, it's, whichever way, you know, it's money going...
[00:32:25] Whichever way is money that's going into to talk to him. And the haircutting issue is clearly when we come back to him. Well, yeah, I mean, my barber will be delighted to have made the cut in this podcast.
[00:33:43] Yeah.
[00:33:44] We'll put a link at the bottom of the podcast.
[00:33:45] He has invited me not to come back again, though, because I bought the pants off him.
[00:33:47] But anyway.
[00:33:48] How much do I need?