Chancellor Jeremy Hunt’s Blueprint to Get UK Back to Work
Jeremy Hunt, the Chancellor, has unveiled his plan to address the increasing welfare bills in the UK through his Autumn Statement. The country has seen a rise in the number of working-age individuals claiming benefits, leading to a strain on public finances. The government aims to alleviate this burden by helping people transition from health benefits to employment, potentially resulting in a boost of nearly £18 billion.
Under the most optimistic scenarios projected by the Office for Budget Responsibility, this transition could generate £10.9 billion in additional tax revenues from individuals reentering the workforce, along with £6.5 billion in savings on welfare expenditure. This would allow the government to reduce interest payments on the national debt by £1.3 billion.
If efforts to reduce inactivity are unsuccessful, deficits and debt may continue to rise. Recent figures indicate that benefit payments accounted for over half of the overall increase in expenditure during the year up to August, amounting to £14 billion.
The Chancellor is initiating consultations to strengthen regulations for individuals who are out of work and claiming long-term sickness payments. Additionally, he is considering significant reductions in benefit uprating. Traditionally, benefits are increased in line with the consumer prices index, which could result in an eight percent hike. However, inflation is forecasted to fall below three percent in 2024 by the Organisation for Economic Co-operation and Development (OECD).
The primary objective of the Chancellor is to encourage individuals to return to work. This could help control inflation as labor shortages have led to increased wage demands from employees. Since the onset of the Covid-19 pandemic, the number of economically inactive working-age individuals has risen by 411,000, with 2.6 million people classified as medically inactive at the start of 2023.
Health benefits are perceived as relatively accessible and generous compared to other welfare options. The Autumn Statement on November 22 will focus on reducing spending and creating fiscal headroom. The goal is to provide room for tax cuts in the 2024 Budget, aiming to lower the nation’s tax burden, which currently stands at 37 percent of national income, the highest since the 1940s.
The Chancellor, Jeremy Hunt, finds himself in a better financial position than anticipated at the start of the fiscal year. Strong tax receipts from value-added tax (VAT) and pay-as-you-earn (PAYE) have resulted in an £11.6 billion undershoot in the first five months. This provides him with more flexibility than previously thought.
Hunt is open to potential changes in the VAT regime for overseas visitors to the UK when framing the Budget. This follows lobbying efforts from upscale retailers, airports, and the hospitality sector, who argue that the current regime pushes visitors to other destinations.
The tax reforms to be outlined in November will likely focus on providing further incentives for business investment, which has seen substantial growth since the pandemic. One economist estimates that business investment has increased by 35 percent since 2020. Hunt plans to build on previous changes by expanding tax breaks for capital investment to 100 percent.
The Office for Budget Responsibility emphasizes that the cost of long-term sickness to taxpayers is a crucial factor in determining whether the government can reduce debt levels or face an increasing debt burden. Addressing health-related inactivity and poor health in the workforce could alleviate the growing pressure on public finances.
Hunt aims to make it easier for individuals with mental health problems to rejoin the workforce by improving access to support. As part of the reforms, health benefits may be reduced to incentivize individuals to seek employment. With inflation on a downward trajectory, there is an opportunity to cut benefit uprating, focusing on forward-looking adjustments rather than backward-looking ones.
Despite the challenges, there are still close to one million job vacancies across various sectors, including health and care.
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