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The Bank of England has criticized the disastrous mini-budget and the failure to spark economic growth from the Covid pandemic, as Jeremy Hunt prepares to unveil massive new spending cuts and tax rises. Ahead of Thursday’s landmark autumn statement – and after inflation hit a 41-year high of 11.1% – Governor Andrew Bailey attacked Britain’s “damaging reputation” which he said had exacerbated the crisis. Pointing to Kwasi Kwarteng’s massive unfunded tax cuts, Mr Bailey said he was told “we didn’t think the UK would do this” at the autumn meeting of the International Monetary Fund. “It will take longer to rebuild that reputation than it will to fix the gold curve [government borrowing costs]. We have to tread carefully,” he warned the Commons Treasury committee. Mr Bailey also highlighted a “dramatic” contrast between the UK’s dismal recovery from the pandemic and growth in the eurozone and the US, which has left the UK economy even smaller than it was at the end of 2019. “I’m afraid it’s not a good story,” he told MPs, painting the backdrop of Mr Hunt’s quest for savings to plug a £60bn “black hole”, widely seen as signaling a return to austerity. The criticism came before the chancellor announced cuts of up to £35bn to frontline services, despite warnings that schools, hospitals, councils and courts would not be able to cope. Mr Hunt will promise a plan to put the country on a “balanced path to stability” as he vows to tackle the “enemy” of inflation. He will say his “difficult decisions” are necessary to keep mortgage rates low and tackle the spike in energy and food prices that are exacerbating the cost-of-living crisis, while protecting long-term economic growth. His plans are set to include raising taxes, including council tax, with the current income tax freeze and national insurance thresholds likely to be extended until 2028 – luring millions into paying more. Mr Hunt could seek to argue that the rich shoulder much of the burden by reducing the rate at which the top 45p income tax rate kicks in from £150,000 to £125,000 and raising capital gains tax. The chancellor will also provide stripped-down help with excessive energy bills from next April, which is likely to see all but the poorest paying annual bills of around £3,100, up from £2,500. Pensions are likely to rise in full by September’s 10.1% inflation rate, rather than much lower wages. Mr Hunt is under huge pressure to do the same with benefits. Owners of electric vehicles could pay road tax for the first time – to prepare for the collapse of petrol and diesel vehicles – but a report to switch to a pay-per-mile system has been rejected by a government source. Mr Hunt is also likely to announce a multi-billion pound drive to insulate homes – and cut energy bills – after a decade of failing to take action on energy efficiency. He could face a Tory rebellion if he raises taxes after former cabinet minister Esther McVey vowed to vote against them unless the costly HS2 high-speed rail plan is scrapped. The chancellor must also show he still has a plan for future growth – as well as balancing the books – after Mr Kwarteng’s planned “supply-side” reforms to immigration, planning and business regulations were put on the table. shelf. The Northern Tories will exploit any delays to much-needed infrastructure projects such as new rail projects, a favorite way for the Treasury to find short-term cuts. Mr Hunt will argue that there is no alternative to new austerity if rampant inflation – called “the enemy we have to deal with” by Rishi Sunak – is to be contained. But the IPPR think tank rejected the argument, warning of a “doomsday loop of further stagnant growth” if Mr Hunt “over-fixes the disastrous mini-budget”. “Further austerity is neither necessary nor inevitable. Spending cuts will only hurt families and the UK economy,” said George Dibb, head of the Center for Economic Justice at IPPR. “There are ways the Treasury can raise money without decimating public services, such as reforming capital gains tax, increasing the windfall tax on fossil fuel companies or introducing a new tax on share buybacks.” Mr Hunt is expected to increase the windfall tax, from 25 to 35 per cent of excess profits, and extend it for three years to 2028. At the Treasury committee, the Bank reiterated its estimate of the damage from Brexit, resulting in a 3 per cent fall in productivity in the long run. Dr Swati Dhingra, a member of the monetary policy committee, warned: “It is undeniable now that we are seeing a much bigger slowdown in UK trade compared to the rest of the world.” Pointing out how the pound has fallen, he added that wages are “about 2.6 per cent below the trend of what real wages would otherwise be”, without leaving the EU.
