Jeremy Hunt has announced a series of tax rises and spending curbs, as official forecasts showed that a recession is expected to in effect wipe out eight years of growth for Britons.
In a lengthy and policy-packed autumn statement – a budget in all but name – the chancellor warned of difficult times to come, with GDP forecast to contract by 1.4% next year and inflation to remain above 7%, but sought to put off much of the pain to future years. He blamed the economic crisis on global factors including the war in Ukraine.
While Hunt announced inflation-level increases to working-age benefits and pensions, insisting he was taking a “compassionate” and balanced fiscal approach, parallel forecasts released by the Office for Budget Responsibility (OBR) made for grim reading.
Even with extended support for energy bills, also announced by Hunt, overall living standards are predicted to fall by 7% over the next two years, effectively removing the past eight years of growth.
In a scathing response, Rachel Reeves, the shadow chancellor, called Hunt’s measures an “invoice for the economic carnage” of the disastrous mini-budget under Liz Truss, saying no similar economies were having to curb spending.
In a near-hour long speech that ranged broadly and announced a string of measures, many of them much-trailed and widely expected, Hunt announced extended, if limited, measures to help people with energy bills beyond April, and inflation-level increases in working-age benefits and pensions, protecting the so-called pension triple lock.
The benefit hike alone would cost £11bn, Hunt said, but “speaks to our priorities as a government and our priorities as a nation”.
Hunt also announced a cap on rises to social rents and a 9.7% rise in the “national living wage”.
Setting out what he called “a plan to tackle the cost of living crisis and rebuild our economy”, Hunt said his measures, including a range of tax rises through freezes or cuts to allowances and “efficiencies” in public services, would reduce inflation and limit the scale of the downturn.
Hunt set out what he said would be a combined £55bn in tax increases and spending cuts, including a reduction in the threshold for the top 45p rate of income tax from £150,000 to just over £125,000, and a freeze on allowances and thresholds for income tax, national insurance and inheritance tax for a further two years, to April 2028.
Electric vehicles would no longer be exempt from vehicle excise duty, he added. An extended windfall tax on energy firms, including a temporary levy on electricity producers, would raise £14bn, Hunt said. As a balance, a similar sum would be spent to benefit about 700,000 companies with reduced business rates.
Announcing what he insisted would amount to real-terms increases to the NHS and education, Hunt said public services would be protected, seeking to see off accusations that he was ushering in a new era of austerity. Capital budgets would be protected, he added, but not in real terms.
In response, Reeves lambasted Hunt for seeking to blame global factors for his decisions. “The chancellor should have come here today to ask for forgiveness, at the very least he could have offered an apology, but no,” she said.
“All the country got today was an invoice for the economic carnage that this government has created. Never again can the Conservatives be seen as the party of economic competence.”
“The mess we are in is the result of 12 weeks of Conservative chaos, but also 12 years of Conservative economic failure.”
Hunt had repeatedly argued – to opposition jeers – that much of the reason behind the need for the measures was down to global factors, beginning his speech by saying it was being made “in the face of unprecedented global headwinds”.
International events, notably Russia’s invasion of Ukraine, was “the primary cause” of inflation forecast to be 9.1% over 2022 as a whole and 7.4% next year, the chancellor said.
Other OBR forecasts showed the economy was forecast to grow by 4.2% in 2022, but fall by 1.4% in 2023, then rising slowly in the coming years.
The speech completed Hunt’s thorough trashing of September’s mini-budget under Truss and the then chancellor, Kwasi Kwarteng, and sometimes wandered well beyond his fiscal brief, with one measure unveiling plans for more devolved mayors across England.
Briefly addressing the disastrous Truss-ea mini-budget, Hunt said he “understands the motivation” to seek growth, but that unfunded tax cuts were a mistake. Markets needed to know debts would be paid, Hunt said, adding: “The UK will always pay its way.”
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