Jeremy Hunt will give a crucial speech to MPs in the House of Commons today (17 November) outlining the government’s tax and spend plans for the coming months.
The autumn statement - which is a UK budget in all but name - is likely to see the UK return to a period of austerity. It comes just under two months after the previous Conservative government’s disastrous mini budget during Liz Truss’s short tenure as Prime Minister.
The Chancellor is set to announce how Rishi Sunak’s administration will fill a huge black hole in the public finances. He must also find a way to help people with the cost of living crisis - which became even worse in October - as well as high interest rates, while combating the recession the UK is set to fall into.
Hunt’s job has been made all the more difficult because the mini budget crashed the value of the pound, hiked government borrowing costs. and led to major market scepticism in the ability of the UK economy to rebound. Any misstep by the Treasury could lead to further economic peril.
Overnight, the Treasury said Hunt will tell the Commons that his plan for the economy will help the UK “face into the storm”. The readout said he will also pledge to be “honest about the challenges, and fair in our solutions” and to “protect the vulnerable, because to be British is to be compassionate.”
So, what could Jeremy Hunt announce? Here are the 5 things to look out for today.
- Tax hikes (but not in name)
The tax hike rumour mill has been in full swing since it became clear the UK has a big gap to fill in its finances.
Hunt told the BBC on Sunday (13 November) that he had been “explicit” that taxes are “going to go up”. The broadcaster also reported that the Chancellor is looking to raise an additional £20 billion in tax.
But the big question is which taxes will be hiked. The Treasury has managed to remain relatively tight-lipped about its plans for raising additional revenue from the taxpayer.
We know some taxes, like capital gains tax, could be in line for a hike - although the Conservatives are understood to want to avoid named tax rises so they can claim to have stuck by the 2019 manifesto.
It has also been reported that income tax thresholds will be frozen until 2028 - something that would effectively work as a tax rise given incomes tend to increase over time.
It comes after Kwasi Kwarteng initially planned to scrap the 45p income tax rate for top earners, and pledged a 1p cut to the key income stream that would have come into effect in April 2023.
Other thresholds that could be frozen include those for VAT, national insurance, inheritance tax and pensions savings. Meanwhile, the mechanism councils can use to consult the public on council tax increases may be scrapped to allow them to raise more money.
A more popular expected move will be an increase to the windfall tax Rishi Sunak introduced when he was Chancellor under Boris Johnson. Reports have suggested it will rise from 25% of profits to 35% or even 40% of profits.
- Public spending cuts
A bit like tax rises, we know public spending is going to be cut - estimates reckon Hunt will seek to chop off £35 billion - but we don’t know where the axe will fall. According to the respected Institute for Fiscal Studies (IFS), this would amount to a cut of 15% from government departments’ budgets if health and defence remain ringfenced.
Ever since Liz Truss’s u-turns began, there have been many reports of departments being told to find efficiency savings. Spending on everything from schools, to policing and foreign aid could be slashed. But instead of saying spending will be slashed, Hunt may word it so that spending rises are delayed beyond the next election, which with inflation translates to a real-terms cut.
The circle Hunt also has to square is that any cuts to government spending on public sector pay would be likely to result in major strike action. Everyone from nurses to teachers are demanding inflation-linked pay rises (having seen their real-terms wages tumble) and are set to go on strike.
So, you can expect this part of the budget to be the most unpopular of all the announcements Hunt makes on Thursday.
- The future of the triple lock pension
Pensioners have already taken a hit this year, after the pensions triple lock was frozen by the Boris Johnson government.
The freeze meant the state handout rose just 3.1% in April 2022 - despite inflation being three-times higher at the time. The cost of living has only continued to increase ever since, meaning pensioners have seen a real-terms cut in their incomes.
Liz Truss appeared to throw the future of the key Conservative manifesto pledge into doubt when it became clear she would need to perform u-turns after her mini budget. Mr Sunak has not provided any reassurance since then, but is expected to stick with the measure in this budget.
What might happen is we could hear about its longer-term future. Former Chancellor Lord Hammond - who Jeremy Hunt is known to have consulted in recent weeks - told GB News on 10 November that he believed the policy might remain in place in the short-term. However, he called for a reappraisal of it in the “longer run” because he believes it is “unsustainable” in its current form.
- Some targeted support
In amongst the doom and gloom, it’s expected Hunt will announce more targeted support for poor and vulnerable households in a bid to help them manage the cost of living crisis. Energy bills grants could be set to continue for pensioners and those on state benefits, while a higher cap is paid by everyone else.
Also understood to be under consideration is an increase to the national living wage - the legal minimum you can be paid if you’re aged 23 or over. The Times has reported the rate could rise from £9.50 an hour to around £10.40 - a near-10% increase - although it would still be well short of the Real Living Wage.
During his time as Chancellor, Sunak opted for targeted handouts - such as the cost of living payment - as opposed to the universal (and expensive) help Liz Truss sought to provide.
- A grim OBR forecast
Capping it all off will be a long-awaited Office for Budget Responsibility (OBR) forecast that is expected to make for grim reading.
Indeed, the lack of an OBR report at the mini budget was one of the main reasons for why markets received Kwasi Kwarteng’s tax cuts so poorly. Its omission gave the impression that the government was ignoring the economic realities faced by the UK, and were essentially flying blind.
The Financial Times has reported that the OBR has told the Treasury that borrowing costs are now £70 billion higher than expected, with borrowing set to rise to around £100 billion by 2026/27. In comparison, its previous assessment of the UK economy in March found a £31.6 billion deficit.
The reason why it has risen so much is that the cost of servicing government debt has risen since the mini budget as a result of a fall in the pound’s value and higher interest rates. The OBR is also believed to be factoring in a reduction in tax receipts during the likely recession the UK faces, and the continuing impact of inflation on public spending on things like benefits.