Chancellor Jeremy Hunt will deliver his highly-anticipated autumn budget in the House of Commons tomorrow (Thursday, November 17), where he is expected to announce a range of tax rises and spending cuts as the Government seeks to restore the UK’s economic credibility in the wake of Liz Truss’s short-lived administration.
The autumn statement will mark an abrupt about-turn on Kwasi Kwarteng’s disastrous mini-budget, which plunged the country into financial turmoil, as Rishi Sunak hopes to reassure the markets and steady the country’s finances. Here is what we can expect this week.
How did we get here?
Only a few weeks ago, Truss and Kwarteng were promising tax cuts as the only solution to drive up UK growth. But the mini-budget on September 23, which promised £45 billion of unfunded tax cuts on top of a massively expensive energy support package, shocked mainstream economists and spooked the markets.
Not only that, but the Bank of England was forced to intervene to stabilise the economy. Axing chancellor Kwarteng and abandoning most of the plans did not do enough to save Truss’s premiership, but the arrival of Hunt and Sunak calmed the markets as investors anticipated a more orthodox approach to economic policy.
What is the ‘fiscal black hole’?
We have been hearing a lot about a so-called “black hole” in the UK finances. Chancellor Hunt has made it his mission, since taking over from Kwarteng, to restore market confidence in the UK and put the country on the road to fiscal stability.
It is widely expected that the size of this fiscal hole is around £60 billion, which can be filled by a combination of tax rises and spending cuts. That fiscal hole did not appear overnight and cannot all be blamed on Truss’s mini-budget.
According to the Resolution Foundation think-tank, that fiscal event helped increase borrowing by up to £30 billion. But the think-tank said that her legacy is not the “existence of a fiscal hole, but the urgent focus on it”.
And while it is ultimately up to the chancellor of the day to set his own fiscal rulebook, the Resolution Foundation and others argue that the price of raising doubts about the UK’s overall sustainability is the focus now on the tax rises and spending cuts that were not on the agenda only a few weeks ago. That is why the Chancellor has spoken in recent days of the UK needing to show we can “pay our way”.
What is going to be in the autumn statement?
Hunt has been explicit that “difficult decisions” are coming on tax and spending, but as is the norm with budgets and fiscal statements, nothing has so far been officially confirmed. Spending cuts across most if not all government departments are expected, although all eyes will be on whether health and defence spending are protected from the carving knife.
Any cuts could prove painful to already stretched public services and Hunt is likely to seek to claw back revenue through tax rises. It is widely expected that he will seek to raise finances through stealth taxes by freezing the rates in which workers begin paying higher rates of tax – put simply, inflation and pay increases will mean more people being dragged into higher bands.
Also believed to be under consideration is a plan to hike the amount that local authorities can increase council tax by without holding referendums. The threshold for when the 45 per cent rate of income tax kicks in for the highest earners could also potentially be decreased, from £150,000 to £125,000.
Hunt is expected to make the support plan for energy bills less generous from April, instead switching to more targeted measures in order to save the Treasury billions, while he is also considering increasing the windfall tax on oil and gas giants from 25 per cent to 35 per cent, while also expanding the levy to electricity generators.
The cap on social care costs announced by Boris Johnson could also be delayed by at least two years, although campaigners have already flagged concerns about any such decision. Hunt is also expected to follow his predecessor Kwarteng and lift the cap on bankers’ bonuses.
What will not be in the budget?
No one should be expecting major giveaways in this budget, amid fears of a return to austerity. And unlike Kwarteng’s mini-budget, Hunt is unlikely to come offering good news about the UK’s economic forecasts, nor with any “rabbits from hats” as budget surprises are often dubbed.
But in some good news, Sunak did hint that the triple lock on pensions could be protected as he said that pensioners were at the “forefront” of his mind ahead of Thursday.
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