Hunt’s autumn statement will intensify the financial hardships facing millions of Britons and usher in years of austerity in public services, but the chancellor will argue the pain is necessary to curb rising prices and restore faith in Britain. While Hunt will insist that saving inflation is the ultimate “growth strategy”, the chancellor will also announce a crucial City of London reform that will allow insurers to free up billions of pounds of capital to invest in green energy and other projects infrastructure. The reform of the EU’s Solvency II rules comes at the end of months of tense negotiations between the Treasury and the Bank of England, which feared looser capital rules could make the industry less safe. Some sources told the Financial Times that a compromise had been reached. Recommended The focus of the Autumn Statement will be Hunt’s attempt to control inflation and repair public finances that have been fragmented by the Covid-19 crisis, the Ukraine war, years of sluggish growth and rising debt-interest costs. He will announce a fiscal consolidation that could exceed £55bn. Andrew Bailey, governor of the BoE, told MPs that people would be watching to see if Hunt could undo the additional damage caused by Kwasi Kwarteng’s disastrous “mini” budget on September 23, which sent markets of gold in upheaval. “We have damaged our reputation internationally,” he told the Commons Treasury committee. “It will take longer to repair this reputation than it will take to repair the gold markets.” Although gold yields have stabilized since Hunt replaced Kwarteng at the Treasury – scrapping most of the “mini” budget measures in the process – global markets are still watching nervously to see what happens next. Rishi Sunak, the prime minister, told the G20 summit in Indonesia that Britain’s reputation had taken a “hit” and that it was vital the government restored “stability and confidence in the UK economy”. Hunt’s plan is expected to set a course in which the debt will begin to decline as a share of GDP at the end of the Office for Budget Responsibility’s five-year forecast period in 2027-2028. The opposition Labor Party claims the country is facing “austerity 2.0”. Hunt’s package will see across-the-board tax increases, but those with the “broadest shoulders” will pay the most. Millions more people will pay the top rate of tax of 45p and levies on capital gains and dividends will increase. The freeze on allowances and income tax floors will bring sharp tax rises after the expected general election in 2024, while Hunt will sharply cut public spending in the next parliament. Recommended The chancellor will claim to be “honest about the challenges and fair in our solutions” and pledge to “protect the vulnerable, because being British means being compassionate”. It is expected to raise pensions, benefits and the minimum wage in line with inflation next April, up from September’s rate of 10.1 percent. On Wednesday, the rate of inflation in October reached 11.1%, a 41-year high. Treasury officials declined to comment on suggestions by people close to the process that while public spending would be squeezed overall, spending on social care could rise, helping to free up beds in overcrowded hospitals. Hunt will also develop a major program to boost the energy efficiency of homes. The chancellor will also provide extra help to the most vulnerable with their energy bills from next April and cap average bills for all households at around £3,000, compared to the planned cap of £4,000. However, Michael Lewis, chief executive of Eon UK, warned: “A ‘squeezed middle’ of homes and businesses face serious energy debt without support from April 2023 – our analysis shows almost two-thirds of people are in debt on their bills their energy. ” Although most of the autumn statement will focus on inflation and financial crises, Hunt will announce that the Treasury has finally agreed a deal with the BoE’s Prudential Regulator to review the Solvency II rules. The chancellor will claim the changes take advantage of regulatory freedom offered by Brexit and help the city boost growth, although the EU has already started reforming insurance rules itself. Treasury officials and some senior City officials say the deal with the BoE on Solvency II is part of a “wider discussion” that could see the Treasury abandon its plan to give ministers “power to intervene” to to overrule city regulators. The Treasury Department declined to comment, but Bailey stepped up his attack on the idea Wednesday: “I’m concerned about that — yes,” he said. He called for the continuation of the current regulatory system where Parliament legislates, the chancellor gives regulators a remit and they then undertake the will to deliver that regulation. The summoning power, Bailey said, “muddies the water.”
