Underscoring the fragility of the economy, the chancellor delayed new austerity measures until the next election amid evidence that higher energy bills and the highest inflation in four decades will cause a prolonged recession, a 500,000 jump in unemployment and a decade of lost living standards. In a grim assessment of the economic crisis, the independent Office for Budget Responsibility (OBR) said the biggest two-year squeeze since modern records began – a cumulative drop of 7% – would wipe out the previous eight years of growth in living standards and return to their 2014 level by 2024. The OBR said the economy had just entered a recession that would last more than a year and see the economy shrink by 1.4% in 2023. Hunt slashed the budgets of Whitehall departments, widened the scope of the windfall tax on energy companies, extended the tax credit freeze, cut the 45% income tax payment threshold to £125,100, gave local authorities the green light to raise council tax and collect more from capital gains tax and inheritance tax as part of a plan to convince financial markets of the government’s intention to reduce the budget deficit. But Hunt increased spending on the NHS and schools and delayed most of his austerity measures until 2024-25 and beyond, as he stressed the need to avoid a “destructive loop” of rising taxes and lower growth. “We are honest about the challenges and fair in our solutions. Yes, we are making tough decisions to tackle inflation and keep mortgage increases down. But our plan also leads to a shallower recession, lower energy bills, higher long-term growth and a stronger NHS and education system,” the chancellor said. The head of one of the UK’s leading think tanks has questioned whether any of the planned austerity would ever happen. Paul Johnson, director of the Institute for Fiscal Studies, said: “Fiscal tightening is heavily burdened, with the biggest spending cuts coming mainly after April 2025. “Given the deep uncertainty surrounding the outlook and the potential economic and social costs of an unwarrantedly large upfront fiscal tightening, this is probably the right choice, on balance. But delaying all the hard decisions until after the next general election casts doubt on the credibility of these plans. Tight spending plans after 2025, in particular, may increase confidence.” Labor said wages adjusted for inflation were lower in 2022 than when the Conservatives came to power in 2010 – a record not matched since the mid-19th century. Rachel Reeves, the shadow chancellor, said: “What people will be asking at the next general election is this: am I and my family better off with the Tories? And the answer is no. “The mess we are in is not just the result of 12 weeks of Tory chaos, but 12 years of Tory economic failure: dismal growth. investments down; Wages are being squeezed. public services are collapsing. Labor said taxes on families were to rise by £120bn since Rishi was chancellor, equivalent to more than £4,000 per family. The prime minister faces his first major electoral test in May’s local elections, with many Tory MPs fearing a dramatic backlash over the cost-of-living squeeze, which is expected to include council tax rises in 95% of local authorities. Torsten Bell, director of the Resolution Foundation think tank, said Hunt’s speech represented a complete change of attitude since Kwasi Kwarteng’s poorly received mini-budget in September. “By giving in, the UK government has gone from announcing the biggest tax cuts for 50 years to the biggest austerity since 2010 in just a few weeks. Today’s edition provided the most reality-based version – but that reality will be very difficult indeed, as unemployment and energy bills rise, while average incomes fall by £1,700 this year and next.’ Hunt said an “energy crisis in Russia” had made difficult decisions inevitable. The chancellor has slashed the generosity of the government’s energy support package from next April, announced a stamp duty cut for home buyers will end in 2025 and said electric car owners will have to start paying vehicle excise duty. 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. In what would be the first rise in fuel duty for more than a decade, the OBR also predicted a 23% rise in fuel duty, which would raise almost £6bn but increase the cost of petrol and diesel by around 12p per liter. Fuel duty has been frozen since 2011 and was cut by 5p a liter in last year’s spring statement, a measure due to expire at the end of March. It was not mentioned in Hunt’s autumn statement, but the forecast said 12pa a liter would be added to pump prices if the government did not act to freeze the duty again. The Finance Ministry said no decision has yet been taken on fuel duty rates for next year. The OBR said the measure of living standards – real household disposable income – would fall by 4.3% in the current financial year, the biggest fall since modern records began in the mid-1950s. “This is followed by the second biggest drop in 2023-24 at 2.8%. This would be just the third time since 1956-57 that real household disposable income per person has fallen for two consecutive financial years – the last time this happened was after the global financial crisis. And the cumulative drop of 7.1% from 2021-22 to 2023-24 is large enough to bring real household disposable income per person to its lowest level since 2013-14.” There was a muted response to the autumn statement from Tory MPs, who sat in deathly silence as the chancellor announced a raft of tax rises that will leave the UK with its biggest tax burden since the second world war. A former minister said: “Many of us are very uncomfortable with raising taxes. It’s not what the public expects from us, but there’s not much we can do about it at the moment.” Former cabinet minister Jacob Rees-Mogg questioned the government’s tax rises but denied he was “threatening anything”, telling Channel 4 News he was “simply supporting Toryism”. “We need to look at the effectiveness of government to make sure the money is being spent properly before we take the easy option of taxing,” he said. Even so, Tory strategists hope Hunt will have done enough to stabilize the economy and, if the international image improves, that Britain could begin to emerge from recession before the next election. They rely on households being better off financially and therefore less likely to punish the Tories electorally. But by pushing through £30bn of cuts until after the election, the chancellor has guaranteed that the state of public services will be a key battleground ahead of the next election. Sunak is already struggling to hold his party’s electoral coalition together in 2019, with red wall voters and those in traditional Tory heartlands wanting starkly different outcomes from the budget.
