Aubrey Allegretti, Political Correspondent: The chancellor opens his autumn statement, which has been dubbed a “memorial for Trussonomics”, by seeking to blame the cost of living crisis on “unprecedented global headwinds”. In a nod to the market chaos that plagued the last government, Hunt says his announcement will provide stability – but he wants to ensure the Conservatives are not just seen as a party of managed decline, stressing it will also seek to grow the economy.
Development
The chancellor says Office for Budget Responsibility forecasts show the economy will grow by 4.2% this year. Hunt says the economy is already in recession, with higher energy prices explaining most of the revision to growth forecasts. GDP will then contract by 1.4% next year, before rising by 1.3% in 2024, 2.6% in 2025 and 2.7% in 2026. In March, the OBR forecast growth of 3.8% in 2022 and 1.8% in 2023. The economy grew by 7.5% in 2021, after an 11% drop in 2020 – the biggest drop in 300 years – during the first wave of the pandemic.
Aubrey Allegretti: Hunt relies on the OBR, saying it has judged that “high energy prices” explain the majority of lower-than-expected growth forecasts. And to allay concerns among MPs about fears of another recession, he says the International Monetary Fund expects a third of the global economy to be in recession this year or next. Hunt abandons his first reference to “tough decisions”, setting the stage for tough measures and stressing that those who believe they are unnecessary “are not being honest with the British people”.
Lending
Hunt says borrowing for the current financial year, 2022-23, will be 7.1% of GDP. In cash, the OBR estimates the budget deficit – the gap between spending and income – to be £177bn in 2022-23. In its previous forecast in March, the OBR estimated that borrowing would be 3.9% of GDP, or £99.1bn in cash, in 2022-23. The chancellor says borrowing is “more than half” of actions in the autumn statement. Public sector net debt is projected to peak at 97.6% of GDP in 2025-26 and then decline gradually to 97.3% of GDP by 2027-28. Hunt announces two new fiscal rules: the underlying debt must be reduced as a percentage of GDP within five years; and public sector borrowing must be below 3% of GDP.
Aubrey Allegretti: One of Hunt’s key audiences is the financial markets, who will be hanging on his every word. Hunt’s new fiscal rules on borrowing are designed to prove his claim that the UK will “always pay its own way”.
Personal taxes
The chancellor is announcing a series of freezes on tax thresholds, including income tax and inheritance tax for another two years, on top of the existing four-year freeze, until April 2028. Dividends will be cut. The annual capital gains tax exemption will also be cut. Hunt says the changes still leave Britain with more generous benefits than many other leading nations. The threshold for the additional tax rate of 45 p.m. will be reduced from £150,000 to £125,140. Hunt says electric vehicles will no longer be exempt from vehicle excise duty from 2025.
Aubrey Allegretti: Although the news has left the Conservative backbenches silent and disgusted, Hunt is trying to lay out the positives so they have a reason to leave the Commons with some lines of defense with the media and disillusioned voters. He says the changes will still leave the UK with the most generous tax-free of any G7 country, adding that taxation will rise by just 1% over the next five years.
Business taxes
The tax windfall will raise £14bn, including a new temporary levy of 45% on electricity producers. Hunt says the government will soften the blow to businesses on business rates with a tax cut of almost £14bn in business rates, which will benefit around 700,000 businesses. Employment Allowance will be kept at a higher level of £5,000.
Aubrey Allegretti: Hunt is wary of the Tories’ much-loved mantle as the “party of business” and points out that 40% of all companies will continue to pay no National Insurance contributions at all. Seeking to head off a possible Labor line of attack, he says the government will continue to target tax avoidance and evasion. Many of the announcements he makes relate to years after the next general election – so some of the pain won’t be felt for years to come. (Or even ever, if the Conservatives end up ousting the government after 2025.)
Public Expenditure
Hunt says government spending will continue to rise in real terms every year for the next five years, but at a slower pace. The chancellor says “discipline in public spending” must be shown in a “challenging period”. Existing departmental spending under the 2021 spending round will be maintained. Departmental spending will then increase by 1% per year over the next three years. He says departments should improve efficiency. However, overall spending will “continue to increase in real terms” for the next five years.
Aubrey Allegretti: Voters may be wearing higher taxes, but they’d probably expect better from struggling public services. Hunt nods to this, saying he wants to “protect them as much as we can.” Seeking to dispel any claims his autumn statement offers a return to austerity, Hunt insists public spending will rise – albeit more slowly than the economy grows.
Foreign aid and climate
Hunt says the government will not be able to return foreign aid spending to 0.7% of GDP until economic conditions allow. It will remain at 0.5% for the remainder of the forecast period. The chancellor says he is confirming that, despite financial pressures, the government remains “fully committed” to Cop26, including a 68% cut in UK emissions by 2030.
Aubrey Allegretti: Two big concerns about more internationally focused spending have not been fully assuaged by Hunt. He says aid spending will not rise to the 0.7% of GDP target and says defense spending will remain at least 2%.
Education
Hunt says the Treasury will increase the schools budget by an extra £2.3bn a year. He says that in tough economic times, a Conservative government invests more in the public service that defines the future for us all.
Aubrey Allegretti: Having felt the heat over the weekend from two dozen Tory MPs – including a former education secretary – who called on Hunt not to cut education spending, he puts out that fire by saying it will rise by £2.3 billion next year and the year after. But how much of that will be left for children’s education after wage increases, energy bills and inflation may still worry some.
Medical and social care
The chancellor says social care has done an incredible job during the pandemic, but the aging population is putting enormous pressure on their services. Hunt says he wants to free up hospital beds by investing in social care and will make £1bn more available next year and £1.7bn the year after, funded by savings from overdue reforms. Patricia Hewitt, the former Labor health secretary, will advise the government on the effectiveness of the NHS. Hunt says: “We want Scandinavian quality along with Singaporean efficiency.” The chancellor says there will be a £3.3bn increase in NHS funding. “This is a Conservative government that puts the NHS first,” he says.
Aubrey Allegretti: Hunt reminds MPs he is a former health secretary – a role in which he was considered unpopular. Subscribe to Business Today Get ready for the business day – we’ll point you to all the business news and analysis you need every morning Privacy Notice: Newsletters may contain information about charities, online advertising and content sponsored by external parties. For more information, see our Privacy Policy. We use Google reCaptcha to protect our website and Google’s Privacy Policy and Terms of Service apply. He seeks to address one of the big issues facing the NHS, saying a plan will be drawn up for the number of doctors and nurses needed up to 15 years into the future. In a nod to the frustrations felt by many in the health service over the impending strikes, Hunt says he will ensure there is “better retention and improved productivity”. Delaying the welfare cap will disappoint Tories loyal to Boris Johnson, who has promised to “fix the welfare crisis once and for all with a clear plan that we have prepared” for three years.
Economic development
The chancellor says the government will focus on economic growth despite having to find budget savings. Energy, infrastructure and innovation will be priorities. “If we want to avoid a catastrophe of higher and higher taxes and lower and lower dynamism, we need economic growth,” he says. Hunt says the government will move ahead with a new nuclear power plant at Sizewell C, helping to deliver reliable, low-carbon power. “It’s the first step in our journey to energy independence,” he says. The chancellor says he will double investment in the energy efficiency of homes and industry to £6bn from 2025.
Aubrey Allegretti: ‘Growth’ was Liz Truss and Kwasi Kwarteng’s watchword – and Hunt wants to show that he hasn’t given up on that ambition, even if it’s achieved in a distinctly different way. To avoid a “destructive loop” of higher taxes and public spending, Hunt says growth remains a priority. The statement’s only real cheer comes when the chancellor takes a jab at the despatch box saying Labor has never cared about growth. However, his observation that “sound money is the rock upon which long-term prosperity rests” sounds more on target…
