Jeremy Hunt issued warning ahead of new budget
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Jeremy Hunt will pitch his and Rishi Sunak’s long-anticipated economic vision for the country in a time of turmoil to the House of Commons on Thursday. The Chancellor is expected to announce a series of tax rises and spending cuts in today’s Autumn Statement in a bid to fill an estimated £60billion “black hole” in the Treasury’s finances as he warns Britons must “face into the storm”.
The Autumn Statement will mark an abrupt about-turn by the new administration compared with Kwasi Kwarteng’s disastrously-received mini-budget a handful of months ago.
The Prime Minister is believed to have devoted much of his first month of governing to the fiscal event, and is seeking to restore the Government’s economic credibility in the wake of the fallout from Liz Truss’s short-lived premiership.
Reports have emerged in recent days that suggest few Governmental budgets and spending commitments will be immune to savings – though Mr Sunak’s administration has claimed it is not returning to austerity.
The PM has said the cuts will be “fair” and “compassionate”. But with inflation over 11 percent – largely driven by increased food and energy costs – many are likely to have a strong reaction to a higher tax bill while public services are cut and energy support schemes are reined in. Tax rises are expected to be the equivalent of £854 per household.
What Mr Hunt will have on his side is an independent forecast by the Office for Budget Responsibility (OBR), published alongside his announcements – a lack of which in September spooked the gilt markets. His statement to the house will follow a dire warning that the OBR is expected to say that the UK is entering recession.
Mr Hunt will say that inflation is “the enemy of stability”, adding: “It erodes savings, causes industrial unrest, and cuts funding for public services. It hurts the poorest most and eats away at the trust upon which a strong society is built.”
Though he believes Britons to be “tough, inventive and resourceful”, the Chancellor is expected to say: “We aren’t immune to these global headwinds, but with this plan for stability, growth and public services, we will face into the storm.”
The Government faces potential opposition from within, as Esther McVey and Simon Clarke have siad they may not back the budget if tax rises go too far. Defence Secretary Ben Wallace has warned against cuts to military spending.
Today’s budget comes against the backdrop of Mr Sunak pledging to publish his tax return but refusing to reveal details of his heiress wife, who previously faced a storm over her own tax status while her husband was Chancellor during Boris Johnson’s premiership.
What is going to be in the Autumn Statement?
Mr Sunak has already suggested that the NHS budget will be untouched by the widespread cuts expected, and could even face an uplift to its funding as it faces an unprecedented waiting list which doctors have warned was causing preventable deaths.
Steve Barclay, the current and former Health Secretary, hinted today that the health service’s budget could rise “to meet those inflationary pressures”.
Similarly, defence spending is anticipated to be protected from the Chancellor’s scythe. On Tuesday, the Prime Minister awarded a £4.2billion contract for five new Royal Navy frigates amid heightened concerns over the threat Russia poses.
The Government has previously committed to raising defence spending to 3 percent of GDP by the end of the decade – something Ben Wallace, the Defence Secretary, previously intimated could be a resigning matter if not kept. Mr Sunak has ducked questions on the pledge.
Britons will likely see the main effects of the budget through so-called “stealth taxes” – policies that see taxpayers handing more over to the Treasury without raising rates.
It is widely believed that Mr Hunt will freeze the income level at which workers begin paying a higher tax band, while lowering the highest tax threshold of 45 percent from £150,000 to £125,000 per annum. Put simply: inflation and pay increases, as a result, will mean more people automatically falling into higher tax categories.
Plans are also reportedly being considered to hike the amount local authorities can raise council tax without having to hold a referendum, allowing councils to raise rates by five percent or more in a bid to pay for social care costs.
It means that many of the households who received a council tax rebate as support for energy bills this year – a policy of Mr Sunak’s when he was Chancellor himself – will have to hand a large portion back to their local authority.
At the same time, Mr Hunt is expected to make Government support for soaring energy bills less generous from April next year, with measures becoming aimed at the most vulnerable.
Raising the windfall tax on fossil fuel giants who have profited healthily from the energy crisis from 25 to 35 percent may also be in store, as well as the introduction of a levy on electricity firms. Mr Sunak was recently taken to task by Sir Keir Starmer, the Labour leader, on how much oil and gas firms had paid in reality into the scheme.
The cap on social care costs – announced by Boris Johnson – could also face a delay of at least two years to save the Treasury some cash, although campaigners have already flagged concerns about such a decision.
Even the darkest cloud has a silver lining though, it seems. Mr Sunak has indicated that the triple lock on pensions – which ensures the state pension rises in line with inflation, average salary rises or 2.5 percent, whichever is highest – may be protected as pensioners were at the “forefront” of his mind.
While the Chancellor is looking to save £54billion, it has been reported that the Government is going to set aside billions of pounds to insulate homes and upgrade boilers in a bid to cut the UK’s energy demand.
According to Bloomberg, Mr Hunt will reveal he wishes to cut energy consumption through wastage by at least 13 percent this decade. Since Putin’s invasion of Ukraine drove energy prices sky-high, energy efficiency experts have been calling for measures to lower consumption, thus lowering bills.
How did we get here?
There are many factors economists have pointed to that have led to the current economic turmoil: economic stagnation and increased borrowing throughout the Covid lockdowns to pay for the furlough scheme; rising inflation globally as a result of it, along with supply chain issues; and the war in Ukraine.
But Mr Kwarteng’s unfunded tax cuts announcement – which ultimately led to the demise of the shortest Government in living history – have not helped by knocking confidence in the Treasury. His fiscal event led to a mass sell-off of long-term Government bonds over fears it would not be able to afford to repay them.
The Resolution Foundation calculates that the mini-budget made the Government’s financial shortfall £30billion bigger as a result, while Andrew Bailey, the Bank of England’s governor, said it caused a long-lasting “knock” to the UK’s reputation as a safe investment.
Economists behind what came to be known as Trussonomics have suggested it was not the tax cuts themselves that caused that turmoil – especially given that they would not have occurred until April next year – but that they were announced without an independent economic forecast.
Some have argued that the mishandling of the mini-budget should not mean its fiscal direction is entirely reversed. Simon Clarke, who was in Liz Truss’s cabinet, said today: “I accept completely mistakes were made about how the budget was handled, both the timing and the radicalism as well as the lack of OBR forecast.
“But the underlying contention that Liz was making remains important and valid, and I think it’s very important that we do not throw the baby out with the bathwater and overcorrect in the months ahead.”
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