PA Consulting comments on the Autumn Statement

Jonathan Gillham, Chief Economist, says:

Falling inflation meant the Chancellor gained significant fiscal headroom to play with in his Autumn Statement. This meant he could both reduce the deficit and put forward a package designed to support business investment. Measures such as making capital allowances expensing permanent will, according to the OBR, raise our growth trend by about 0.1%, while adding almost £14bn to business investment. Coupled with measures in the Spring “growth budget” there is now a vastly increased set of measures to support R&D and innovation led investment. This will benefit the economy and our view is that these will play out with much bigger economic benefits than the OBR are suggesting. 

But it wasn’t all positive news. The OBR have cut their economic forecast from 1.8% and 2.5% in 2024 and 2025 to 0.9% and 1.4% respectively. Inflation is expected to persist and interest rates will need to stay higher for longer. This will be bad news for households, businesses and markets, but much of this thinking has been baked in for a while as many forecasters have been anticipating this outcome. 

A key challenge the OBR has presented is a drop in people available for work, which is substantial enough for them to downgrade their long run growth assumptions from 1.8% to 1.6%. This will have the likely consequence of pulling down longer term economic forecasts making for a tough economic environment for whoever wins the next election.

Shaun Delaney, Head of Public Services, says:

In the Autumn Statement, the Chancellor built on his long-term plan for growth with a set of measures targeted at driving innovation through local areas – freeports, investment zones and new devolution deals.

There is a real opportunity to maximise our national growth by taking a locally led approach to innovation, building on existing pockets of best practice and ensuring collaboration across initiatives and funding streams.

How do we get the most out of these investments and ensure that innovation sticks, acting as a benefit multiplier rather than simply a cost reducer?

Take a locally generated approach and empower local leaders to bring businesses and communities together around solutions that work for their places.

Emphasise mission-led innovation with a clear purpose and priorities.

Put the citizen at the centre, with a strong understanding of what innovation can achieve for communities.

Amanda Kelly, public sector expert, says:

The Autumn Statement hasn’t done enough to ease the financial pressures faced by councils. 

Recent research suggests only 14% of councils are on course to deliver a balanced budget, but without a long-term funding settlement, the risk of councils tipping over the edge into real financial crisis – including effectively declaring ‘bankruptcy’ – increases. Without a long-term funding settlement, more local services will be lost as spending on non-statutory services such as libraries, parks and leisure centres becomes impossible – one county council recently reported for every £100 of budget, only £15 is available to spend on services other than adults and children’s social care. 

We need to move beyond the current pressures to tackle the ever-increasing tide of demand. 

Whilst additional funding such as the £7.5 billion into adult social care announced in the 2022 Autumn Statement has been welcomed, this only helps deal with current pressures and has largely been focussed on older people and hospital discharge. The challenges we have are many and this doesn’t help, for example, the ever-increasing tide of demand or other areas of adult social care such as supporting working age people with a learning disability or mental health condition. 

The Autumn Statement was an opportunity to ringfence money for prevention spend and for additional capacity to enable councils to reform alongside delivering the day job. 

After a drop during COVID, requests for support have now bounced back to reach an all-time high. Staff vacancies in adult social care are now the highest since records began and we’re failing to properly address needs early enough to prevent them escalating. The number of children in care is also at its highest since records began. An additional 33,000 children entered the care system in the last year alone. With an increasing proportion of councils’ budgets taken up responding to crisis care, we urgently need a long-term funding settlement.

Derreck Van Gelderen, data and AI expert, says:

Investment in AI needs to be about building our skills and talent as much as our infrastructure.

Earlier this year our Minister of AI announced three focus areas: Investment, Regulation and Reach. Today's Autumn Statement shows that although there is investment going into our infrastructure, more needs to be done to build the AI talent pool and drive its adoption across the whole country. 

Has enough been announced for the UK to become the powerhouse it has its sights set on? 

Whilst the UK is following up on its promise of providing an additional £500m investment to fund more innovation centres and provide AI developers the compute they need; when compared to the investments announced today in other sectors it may not be enough to ensure that the UK becomes, as the Chancellor states, “an AI powerhouse”. 

Little has been mentioned about how the UK will promote AI across the nation, and not just limited to its innovation hubs. 

This is not an area where we can afford to be complacent as the UK faces competition for top AI talent from other hubs such as the US, China and France. To become an AI powerhouse the investment must grow both our infrastructure and our talent and we need to focus on helping both our public and private sector explore, experiment and evolve.

Anthony Legg, energy and utilities expert, says:

A missed opportunity to take decisive measures to aid UK’s international competitiveness in the hydrogen, carbon capture and storage, and nuclear industries. 

We remain at significant – and increasing - risk of falling behind the US and EU in attracting investment into these green growth industries.

Disappointment felt by many in the industry. 

The energy industry will have welcomed the delivery of domestic and sustainable energy as one of the government’s five priority areas for the Autumn Statement, but the statement itself will largely have disappointed most, focusing principally on well-trailed or prior announcements and providing no major policy announcements or new funding commitments.

While the Statement hasn’t included much in the way of new policy announcements, a raft of new announcements is expected before the end of the year, including in relation to accelerating hydrogen and carbon capture and storage investments and the ongoing review of electricity market arrangements, so hopefully we can look forward to enjoying the holiday season with a renewed sense that delivery of net zero is on track. 

A view on the details:

There are some useful measures to accelerate delivery of net zero: Steps announced to speed up grid connection times, to accelerate the pace of grid upgrades, to make it easier to install EV chargepoints and also heat pumps are all welcome measures.

The decision to exempt new renewable power generation projects from the Energy Generation Levy will be welcome, though it doesn’t assist existing projects, and builds on last week’s announcement of increases in the price government is willing to pay to support offshore wind projects.

Another boost for offshore wind is the announcement to enable the Crown Estate to borrow and invest as part of opening up additional seabed capacity, perhaps in aid of energy islands or other shared offshore infrastructure.

The real test of whether these measures have been successful at maintaining confidence in the UK’s leading position in the offshore wind market will not be until next year’s auction.

There is a sensible announcement of £960m worth of funding support for manufacturing capabilities in low carbon industries. Combined with some of the wider business tax changes also announced in the Autumn Statement this will help bring forward some investment in domestic supply chains, but more funding is likely to be needed given the scale of the net zero challenge.

It was disappointing that there was no extension of support to households for their energy bills, or indeed water bills, and some tax breaks aside there were no announcements on energy efficiency measures.

Stephen Farrington-Bell, healthcare expert, says:

No new money for the NHS with the Autumn Statement reconfirming previous health spending commitments. 

The NHS is on track for at least a £1.3bn deficit this year, with continued pressures from industrial action, demand and inflation, meaning productivity has heightened importance.

Capital budgets look set to continue to be restricted. 

Capital remains an issue in healthcare, and with capital budgets this year being raided for day-to-day spending, investment in critical infrastructure, digital (including AI investment) and wider productivity will be inevitably limited – exacerbating problems in the longer term.

Support for growing investment in the innovative life sciences industry in the UK is welcome, with the measures announced seeking to make the UK a more attractive place for global life sciences investment and advanced manufacturing. With more predictability over drug pricing, the five-year horizon is now clearer which will help unlock innovation and attract investment to the UK.

There is a growing role for healthcare providers, both NHS and non-NHS, in the productivity puzzle. 

With more than 2.6m people out of work due to long-term sickness, the Autumn Statement announced a number of measures - such as community mental health support, expansion of talking therapies and a new framework for occupational therapy - to address this. The contribution of occupational therapy, mental health, musculoskeletal services, and long-term condition management has never been more critical to the economy.

In light of the Autumn Statement, the NHS will need to continue to focus on areas where it has the power to address productivity, such as workforce management, operating theatre utilisation, lengths of stay, commercial and contract management, and the opportunities from digital transformation and AI. There is a need for grip and control in the short term, while managing the bigger issues.

Sian Griffiths, a data science expert in defence and security, says:

Global instability means that continued investment in defence is vital. But it isn’t just a question of efficiency, it's also about pace. The Government and industry need to collaborate more than ever.

The additional investment in innovation will be critical to enable the Defence enterprise to harness cutting edge technologies to modernise and drive data led decision making.
Tax breaks for business will also help industry suppliers to increase their capacity to respond and deliver at pace.

The investment in strategic manufacturing, particularly in the aerospace sector, will help develop new digital technologies while working towards a cleaner future.

David Oliver, Global Head of Transport, says:

The Autumn Statement has some really positive news for transportation. In particular the funding for low emission, but also the devo-max deals for Manchester and the West Midlands.

The devo-max deals have allowed local areas to innovate, not just in transportation, but more broadly. This freedom, coupled with wider funding for zero emissions should allow local areas to deliver better outcomes for their citizens. To now make this a reality, they will need continued support from Whitehall, true financial freedom and a truly national integrated infrastructure plan to make this a success.

Jason Whyte, pensions and investments expert

The Autumn Statement included a basket of small measures aimed at making long term investment easier for consumers. 

For savers, there are multiple welcome tweaks but nothing revolutionary. ISAs are simplified and modernised, with the ability to contribute to multiple ISAs in a year.

The call for evidence for a Lifetime Provider model in pensions could be revolutionary. 

Today, many people accumulate – and sometimes lose track of – small pension pots as they move jobs and employers. The Autumn Statement opened debate on a more radical solution: the right to ask employers to pay into your pension scheme of choice. It is a model that works in Australia, but in the UK’s more fragmented market there are potential risks and raises a number of questions. On the other hand, providers may value the opportunity to build a longer term and more direct relationship with customers. It will be interesting to see how the industry responds to the Call for Evidence. 

The Autumn Statement had a continued focus on encouraging long term investments in pensions. 

The industry will have welcomed accelerated planning permission, but attempts to encourage individual defined contribution schemes to hold longer term assets may face challenges. Consumers may be stuck holding assets that can be hard to sell at full value, which can be perceived as riskier.

Another interesting change in the detail of the Autumn Statement was a requirement for occupational pension schemes to offer their members access to retirement products at an appropriate quality and price. 

This should be good for savers, but places an additional burden on scheme trustees. One result might be to accelerate the existing trend of individual company schemes folding themselves into Master Trusts that can better cope with this type of regulatory obligation.