Jeremy Hunt to unveil spending cuts and tax hikes
Chancellor Jeremy Hunt will pledge to weather the economic ‘storm’ as he is expected to confirm widespread spending cuts and tax hikes.
He will say that “tough decisions” are needed to cope with soaring prices and limit mortgage costs.
But he faces a potential backlash from some Tory MPs who oppose big tax hikes.
The BBC understands that state pension and benefits will rise with prices. Energy support is expected to continue beyond April but will be less generous.
Labor said the country was ‘held back by 12 years of Conservative economic failure and squandered opportunities’, with workers ‘paying the price’.
The BBC has spoken to people in Whitehall and Parliament about what is likely to be in Mr Hunt’s autumn statement.
Final figures will be released as the statement is delivered, but it is expected that around 55% of the measures will be spending cuts and 45% tax hikes. This will likely equate to around £30bn in spending cuts and £24bn in tax hikes.
The Chancellor is likely to argue that this is not a return to the austerity policies of the Conservative-Liberal Democrat coalition government of 2010, with the balance of tax spending cuts rising from 80% to 20% under then Chancellor George Osborne.
The government argues the measures are needed to close a so-called fiscal black hole – the gap between what the government raises and spends.
However, some have questioned the reliability of the forecasts and the policy decisions taken by ministers.
Freezing the levels at which people pay various taxes will be a big theme of the statement. Due to inflation and wage increases, people will end up paying more taxes.
The threshold at which top earners start paying the top rate of tax will be lowered to £125,000 from £150,000.
With inflation – the rate at which prices are rising – currently at its highest level in 41 years, many departments will see their budgets tightened with increases below inflation.
But the health budget is expected to be protected and grow in real terms – even when price increases are taken into account.
The government will also save money by making energy bill coverage less generous from April.
The Treasury is likely to say that an energy price guarantee will remain in place – but will be set at a higher level. This means millions of households will see their bills rise by hundreds of pounds a year from April.
Under the current regime a household using a typical amount of gas and electricity would have to pay £2,500 a year. This figure is expected to rise to just over £3,000, but without the intervention the bill for a typical household would have reached £4,000.
Universal child support will end, but targeted support will be given to low-income people and retirees.
The energy industry – including energy producers – will also be hit by a significantly expanded windfall tax to help pay for support.
The BBC understands the state pension and benefits will rise with inflation – although this has not been officially confirmed.
A raise National Living Wagefrom the current level of £9.50 an hour for over-23s, will also be confirmed.
After unexpected announcements in the ill-fated mini budget of Mr Hunt’s predecessor, Kwasi Kwarteng, no major surprises are expected from the Chancellor.
Mr. Hunt has already reversed nearly all of the tax hikes announced in the mini-budget in a bid to stabilize financial markets.
Unlike Mr. Kwarteng, Mr. Hunt will release independent forecasts from the Office for Budget Responsibility (OBR) alongside his statement.
Forecasts should paint a gloomy picture, after the Bank of England warned that the country is on the verge of its longest recession since records began.
In his autumn statement, Mr Hunt is expected to say: “We are making tough decisions to ensure strong public finances and help keep mortgage rates low, but our plan also protects our long-term economic growth.
“At the same time, we are protecting the vulnerable, because to be British is to be compassionate.”
He is about to add that the UK is not “immune” to the global economic crisis “but with this plan for stability, growth and public services – we are going to weather the storm”.
However, some right-wing Tory MPs in the party have already expressed concern over the prospect of tax hikes.
Former cabinet minister Esther McVey said Raising taxes is the “last thing” a Conservative government should do.
On Wednesday, she warned she would not support tax hikes unless HS2’s “unnecessary vanity project” was scrapped.
Simon Clarke, who was in Ms Truss’ cabinet, warned Mr Hunt not to ‘throw the baby out with the bathwater and over-correct’ by imposing too many tax hikes.
“I hope they find a balance that relies much more on spending cuts than tax hikes to balance the books,” he told BBC Radio 4’s PM program.
But former work and pensions secretary Stephen Crabb said he feared the spending cuts posed “real risks to the quality of public services”.
He told the BBC that the state pension and benefits must ‘absolutely’ rise with inflation and that the guarantee of energy prices must be broader than just helping pensioners and benefit recipients .
He added he was confident Mr Hunt would make “the right decisions”.
Shadow Chancellor Rachel Reeves said the UK needed “fairer choices for workers and a proper plan for growth”.
“Britain has so much potential, but we are falling behind on the world stage, while the costs of mortgages, food and energy rise more and more,” she said.