The Office for Budget Responsibility estimates that a worsening economic outlook will push government borrowing close to £100bn in 2026-2027, according to an ally of the chancellor. In its March forecasts, Britain’s fiscal watchdog had estimated a budget deficit of just £31.6bn for that year. Hunt recognized the need to take action after receiving dire forecasts from the OBR. “We will see everyone paying more taxes. We will see spending cuts,” he told the BBC on Sunday. Prime Minister Rishi Sunak said the UK would be punished by financial markets if it did not go ahead with tax increases and spending cuts to fix public finances. Liz Truss’ disastrous “mini” budget in September sent markets reeling, including a sharp rise in the government’s borrowing costs, and culminated in her resignation as prime minister. Sunak, speaking to reporters en route to the G20 summit in Indonesia, said: “Economic conditions in the UK have clearly stabilized, but they have stabilized because people are waiting for the government to take the decisions that will set public our finances on a sustainable path. and it is the government’s job to achieve this.” Around half of the £70bn increase in borrowing is due to the higher expected cost of servicing government debt, with the rest coming from a weaker economic growth outlook hitting tax revenues and inflation increasing the cost of welfare benefits and government pensions. Recommended The deterioration in underlying public finances estimated by the OBR is significantly greater than that estimated by think tanks such as the Institute for Fiscal Studies and the Resolution Foundation and has supported the Treasury’s quest for measures to restore the government’s coffers. This is likely to result in tax rises and spending cuts of between £55bn and £60bn a year over five years, enough to ensure the UK’s debt burden is reduced in 2027-28, the final year of the latest OBR forecasts. Hunt’s ally said the autumn statement would focus heavily on public finance regulation because it was “difficult to meet” the OBR’s forecasts, but this person insisted the Treasury was not deepening the coming recession with excessive tax rises and spending cuts. The OBR declined to comment. Hunt will focus on curbing the rise in day-to-day spending on public services after the government’s existing plans for Whitehall departments expire in 2025. Holding this spending constant in real terms would save around £27bn a year by 2027-28, according to calculations by the Financial Times. Hunt meanwhile plans to freeze several annual allowances and thresholds in the tax system to secure more revenue as people’s incomes rise amid high inflation. He is seeking token tax increases on the wealthiest people to show that those with the broadest shoulders pay the most. The threshold for the highest income tax rate of 45 p.m. expected to fall from an income of £150,000 to £125,000. The £12,300 annual capital gains tax allowance is likely to be halved. Hunt said he would outline on Thursday the government’s new plan to help households with rising energy bills from April. The government is currently capping electricity and gas bills for all households after wholesale energy prices rose, but is expected to focus future help on pensioners and the vulnerable. Officials said the government’s overall fiscal stance as the UK economy enters recession was “incredibly supportive” for households by helping with energy bills, but more importantly it was helping the Bank of England to contain inflation. Sunak suggested that by focusing now on stabilizing public finances, the government could eventually cut taxes and increase spending on public services. “So we will be able to reduce people’s taxes over time and support public services,” he said. The chancellor stressed that the government wants to boost economic growth as part of the Autumn Statement, noting the labor market shortages caused by 600,000 mostly elderly people who have decided not to work. But with officials stressing the statement will be primarily a fiscal consolidation, Hunt plans to outline the obstacles to growth the government will focus on fixing in the coming months. Additional reporting by Daniel Thomas in London
