Two months after Kwasi Kwarteng, Hunt’s predecessor, sparked market panic with a “mini” budget that included £45bn of unfunded tax cuts, the chancellor’s autumn statement reversed Tory economic policy. While Kwarteng announced the biggest tax-cutting plan in 50 years, Hunt presided over the biggest tax-raising effort in 30 years outside of the pandemic, leaving the country with its biggest tax burden since World War II. The chancellor told a somber House of Commons that massive fiscal consolidation, including £30bn of spending cuts and £25bn of tax rises, was needed to restore Britain’s credibility and tame inflation. The Office for Budget Responsibility said that by 2027-28 Britain would have a tax burden of 37.1 percent of gross domestic product — one percentage point higher than it forecast in March and a post-war record. With the UK economy slipping into recession, the OBR’s forecasts highlighted the challenge to households and public finances, both of which will be weighed down by forecast inflation of 7.4% in 2023. The economy is forecast to shrink by 1, 4 percent and is not projected to recover to pre-pandemic levels until the end of 2024. The OBR said rising prices would erode real wages and reduce living standards to their biggest fall in six decades, by 7% over the two financial years to 2023-24. This would wipe out the growth of the previous eight years, despite more than £100bn of additional government support. The pound was 1 percent lower on the day at $1.1788 against the dollar after Hunt unveiled the package, slightly below the level before the chancellor launched his statement. UK government bonds remained under moderate pressure, trading slightly lower on the day. Much of the fiscal consolidation, including “stealth” tax increases and a major squeeze on public spending, is planned for the years after the expected general election in 2024. Rachel Reeves, a Labor Treasury spokeswoman, said it was intended as an election “trap” for her party. However, one of the biggest increases in taxation – the freeze on national insurance limits for businesses – will come into effect from April 2023. Hunt delighted Tory MPs by finding money to cushion the blow of rising inflation for the health and social care system, providing an extra £5bn a year and another £3bn for schools over the next two financial years. He also announced inflation-linked increases to pensioners and those on benefits, confirming he was keeping the “triple lock on pensions”. He said: “To be British is to be compassionate.” Hunt said public spending would rise by only 1 per cent in real terms in the next parliament and capital spending would be frozen in cash, raising £21bn and £14bn respectively – the bulk of the budget squeeze. This would represent a significant cut in capital expenditure plans. The chancellor insisted the tax rises and spending cuts were necessitated by an “international crisis” and played down the idea that any of the problems were domestic. “It’s a recession that happened in Russia, a recovery that happened in Britain,” he said. But his statement was an acknowledgment that Britain’s recent dismal economic performance — undermined by the 2008 crash, the Covid-19 pandemic, the Ukraine war and Brexit — meant the country was living beyond its means. . Hunt told MPs his autumn statement would ensure Britain’s debt falls as a share of GDP by the end of the five-year forecast provided by the OBR, which was sidelined by Kwarteng. Britain’s economic recovery from the depths of the pandemic has lagged behind its rivals. Figures compiled by the OECD found that the UK economy was still 0.4 per cent smaller in the third quarter of this year than in the final quarter of 2019. The euro zone was 2.1 per cent larger and the US 4.2 percent greater. Andrew Bailey, governor of the Bank of England, said on Wednesday that Brexit had contributed to the UK’s economic weakness, although Hunt and Prime Minister Rishi Sunak played down its significance. Hunt told MPs the global outlook was difficult. “We are not immune to these global headwinds,” he said. “But with this plan for stability, growth and public services, we will weather the storm.” The chancellor said his main aim was to help the BoE beat inflation, which hit a 41-year high of 11.1% in October. “We need fiscal and monetary policy to work together,” he said. Recommended The chancellor insisted his tax hike measures were fair: they included cutting the threshold for the top 45 per cent tax rate from £150,000 to £125,000. The burden of dividend taxes and capital gains tax will also increase. “We ask more from those who have more,” he said. Businesses will also face a big tax rise, notably through a freeze on the national insurance cap on employers’ contributions, which will raise £5.8bn by 2028. A windfall tax on energy companies will raise £14bn next year . Hunt confirmed that average energy bills will be capped at £3,000 a year from next April for everyone, with the most vulnerable getting special help to keep their bills down. Among the measures Hunt announced was a confirmation that EU rules governing the insurance sector, Solvency II, will be rewritten to free up “tens of billions of pounds” of capital to be spent on infrastructure. The Sizewell C nuclear power station will be built. Video: The Brexit effect: how leaving the EU has affected the UK
