The chancellor has announced a raft of new tax rises and spending cuts designed to keep inflation down as the country enters recession
Another day, another chancellor…
“With this plan for stability, growth and public services, we will face into the storm.”Jeremy Hunt
That was Jeremy Hunt, delivering his Autumn Statement to the House of Commons.
The big headlines? Tax increases, spending cuts, and a whole world of pain for people up and down the country.
It was one of those moments where you could tell, even with the sound turned down, that this was a man delivering bad news, because it was written all over the glum faces of the Conservative MPs sitting behind him.
It’s hard to believe that it was only 56 days ago that Kwasi Kwarteng was stood at the same dispatch box, delivering the extravagant growth plan he had cooked up with the then Prime Minister Liz Truss.
He was promising historic tax cuts….
“Next year’s increase in corporation tax will be cancelled.”Kwasi Kwarteng
“It is entirely appropriate for the government to use our borrowing powers to fund temporary measures to support families and businesses.”Kwasi Kwarteng
and a two-year freeze on energy bills.
They didn’t have a plan to pay for any of it, so of course, it was an absolute disaster. The financial markets hated it. The pound collapsed to its lowest level in 40 years and Britain became a global punchline.
So Jeremy Hunt – who is the fourth Conservative chancellor since July – had a lot of reversing to do. All at a time when the economic situation is already dire: inflation has hit a 40 year high at 11%, energy prices are still sky-high, unemployment has started to creep up, and as he told MPs, the UK is now officially in recession.
His fiscal announcements – wholeheartedly backed by the current prime minister Rishi Sunak – have been designed to undo the damage to market confidence done by his predecessor.
The aim is to restore Britain’s tarnished economic reputation by providing a plan to reduce future debt and curb inflation.
All of which means, the Treasury is looking to fill a £54bn black hole in the public finances.
But how would the government carve up this enormous bill?
Jeremy Hunt has spent weeks preparing the public for bad news. And that’s where he chose to begin his Autumn Statement…
“There is a global energy crisis, a global energy crisis, and a global economic crisis.”Jeremy Hunt
You might notice there, that he didn’t really want to talk very much about the damage done by Trussonomics and that dash for growth. He wanted to blame world events, not his Conservative colleagues.
“There may be a recession made in Russia, but there is a recovery made in Britain.”Jeremy Hunt
So what is in the plan?
On one side, taxes will rise. The freeze on income tax thresholds will be extended, this means over three million people pay more in tax as their wages rise. Oil and gas firms will have to pay a huge windfall tax of 35% on their profits. And the cap on the amount households will pay for energy has been made less generous, increasing from £2500 to £3000.
On the other side, there will be real-term cuts to public spending…
“We’re going to grow public spending, but we’re going to grow it more slowly”Jeremy Hunt
However, government departments like education, social care and the NHS will be spared.
But the chancellor was also keen to be seen to provide support for the most vulnerable.
“To be British is to be compassionate and this is a compassionate Conservative government.”Jeremy Hunt
Means-tested benefits – including Universal Credit – and pensions will rise in line with inflation: that’s just over 10%. And there will also be an increase in the National Living Wage too. A lot of spending cuts have been deferred to after the next general election.
Economists were quick to react, here’s Paul Johnson from the Institute for Fiscal Studies…
The next few years look grim in terms of living standards, the biggest reduction in household incomes, possibly on record and certainly within recent generations.”Paul Johnson
But the judgement everyone was waiting for was from the independent forecaster, the Office for Budget Responsibility – remember, they were ignored by Kwarteng and Truss last time round, at huge cost to the government’s credibility.
The OBR view of Hunt’s statement was pretty sobering.
“Over £100bn of additional fiscal support over the next two years cushions the blow of higher energy prices – but the economy still falls into recession and living standards fall 7% over two years, wiping out eight years’ growth.”OBR Statement
That’s going to take incomes down to 2013 levels. The UK is expected to have the worst economic decline in Europe next year and living standards will not recover until 2027.
The chancellor claims his latest measures mean the country will experience a less severe recession than it would have had without them. But as the OBR made clear, Britain’s woes are worse than their European neighbours and G7 counterparts.
Tortoise’s Political Editor, Cat Neilan explains the politics behind it all…
“Jeremy Hunt tried to make a big thing about it being fair, that those with the biggest shoulders would take the biggest burden. This is critical to the survival of the party. You know, they need to be seen to stick to their manifesto commitments like the pensions, triple lock, and operating benefits in line with inflation.
But they also need to make sure that they’re giving their MPs something that they can take into the constituencies and say: “Look, we are having to be the grownups. And we are having to pay for it, and no one will pay more than they deserve.”
One of the more interesting political elements to all this is the fact that because so many of the, uh, spending cuts have now been deferred until after the next election, that will force Labour to take a position on it. One of Labour’s probably biggest Achilles heels in recent years has been its refusal to come up with strong alternative policies.
“What people will be asking themselves at the next election is this: are me and my family better off with a Conservative government? And the answer is no.”Rachel Reeves
By putting the spending cuts into post 2024, that will force them to take a view. They will have to have a position. Either they will have to roll back on it and be campaigning on tax wises, or they will have to back it and therefore back austerity. And that could be quite a difficult situation for Labour to be in.
This episode was written by Rebecca Moore and mixed by Gary Marshall.