The independent Resolution Foundation estimates the Truss government was responsible for around £30bn of the budget hole the Treasury puts at £60bn, which Hunt will have to address in the autumn statement on Thursday. The thinktank also says the £30bn figure would have been much higher without the U-turns Hunt had already made to the Truss plans. Economists in the Russian Federation estimate that in her seven-week premiership, Truss and her chancellor Kwasi Kwarteng poured £20bn into unfunded cuts to national insurance and stamp duty, with a further £10bn added from higher interest rates and costs government borrowing as markets reacted. with dismay at the former prime minister’s dash for development. The rest of the fiscal hole, RF says, may be due to unexpectedly poor economic conditions, which have led to lower growth and lower tax revenues to the Treasury. Estimates of the cost of “Trussonomics” will intensify a bitter blame game now being played at the top of the Tory party. While many Tory MPs will be angered by more tax rises, the chancellor is expected to make it clear that, to a large extent, he needs to repair the damage caused by No 10’s latest occupant, who was backed by many right-wing Tory MPs. Last week Kwarteng tried to excuse himself from some of the blame, saying he had told Truss to “slow down” and warned her she would only survive two months in Downing Street if she went ahead with her full tax-cutting agenda. In an interview with the Sunday Times, Hunt says Truss was right to want to grow the economy but wrong to do so without making sure the tax cuts were funded. “We fixed those mistakes very quickly and, you know, I think we understand how it’s very, very important … alongside any plan to show that we’re a country that’s going to pay its own way,” he said. On Thursday, Hunt will announce £25bn of tax rises alongside £35bn of spending cuts as he aims to restore at least some of his party’s battered reputation for financial management. The vast majority of increases will be so-called ‘stealth taxes’, achieved by freezing thresholds on income tax, national insurance, inheritance tax, pension savings and the threshold at which companies must register for VAT. By not increasing these limits based on the rate of inflation, more people are brought into the tax net or lured into paying higher rates. Jeremy Hunt with Liz Truss. The chancellor is set to announce a program of tax rises and spending cuts. Photo: House of Commons/PA As chancellor, Rishi Sunak froze many tax caps until 2026, but Hunt will now do so for another two years until 2028. The Institute for Fiscal Studies says the Treasury is set to raise £30bn a year until 2026 due to of freezes and effects of rising inflation and will reap an extra £6bn a year if it does so by 2028. Hunt is also likely to impose a higher tax rate on energy companies’ profits, raising the surcharge from 25% to 30%, which will run for another six years, on top of the 40% companies already pay, meaning effective rate of 70%. In addition, the Treasury is looking at possible changes to taxes on share dividends and considering lowering the threshold for capital gains tax, another move that would prove deeply unpopular in the Tory party. Sources said lowering the threshold at which the tax rate of 45 p.m. is also being considered. starts from £150,000 to £125,000, and to allow local authorities to raise council tax more than the current limits without requiring a local referendum in order to pay for costs including social care. Hunt is expected to increase pensions and benefits in line with inflation to protect the poorest from the cost of living crisis. But all government departments will be told they have to live within their 2021 budgets this year, meaning huge extra pressures on schools and hospitals, which have to fund pay rises for staff, plus inflation. Last night Hunt also came under political pressure from Tory MPs in “red wall” seats. The chairman of the 40 Conservative Northern Research Group, John Stevenson, wrote to Hunt asking for guarantees that money would be provided to ensure infrastructure projects such as road and rail schemes could go ahead even if costs had risen due to inflation. An inflation-adjusted cut in Whitehall spending will be another blow to the economy. Ministers agreed in 2021 to an average increase of 3.3% linked to inflation over the next three years. However, the lion’s share of the extra funds were planned to go towards health services, funded in part by a 1.25% increase in national insurance. With the National Insurance increase scrapped, the health service is likely to get a less generous funding deal and vulnerable departments such as transport and the Home Office will see real-terms cuts. Government departments and local councils have complained that the practical effects of inflation are leaving them out of pocket. Hospitals and schools are expected to be further burdened next year without a bigger boost to their funding. Councils say they are struggling to tackle a £3.2bn budget deficit next year which they expect will have to be covered by higher council tax bills. Kit Malthouse, the education secretary under Truss, said on Saturday that more cuts to schools would be a disaster. Speaking to GB News, he said he had seen “worrying things in the papers over the last couple of days where they suggest there may be cuts to the education budget. As far as I can see, I can’t see how that can be acceptable.”
