Once you get into a new job, you collect all the bad news, announce the crappy things all at once, and make the most horrible, most painful decisions all at once. You throw the kitchen sink at him. You will have spotted this strategy before, and not just in politics – although George Osborne’s 2010 summer budget is often seen as the prime example. Note how when a new CEO takes over a company, they will always start by telling you that the whole place is in desperate need of a clean-up and a change in strategy. The Autumn Statement will be Rishi Sunak and Jeremy Hunt’s attempt to ‘sink the kitchen sink’ on the bad news for the UK economy. And to some extent, they should do little to enhance what already comes from the independent Office for Budget Responsibility (OBR). The OBR’s forecasts for the economy – the official numbers against which the government must base its own policy decisions – were already shaping up to be pretty dire long before Rishi Sunak entered Downing Street. The UK is probably already in recession. It could be a long recession – although the many caveats to the Bank of England’s forecast of eight quarters of decline seem to have been forgotten in recent weeks. What might the future hold? Either way, the news isn’t good, and this recession is likely to be tougher than many others, largely because this time it’s not banks or businesses that are being squeezed but households themselves. For proof of this, look no further than the latest inflation figures from the Office for National Statistics, which show that house prices and household services are rising at the fastest rate since comparable records began in the 1950s. Truth: the road ahead is very uncertain. If gas prices fall and the conflict in Ukraine goes in the right direction, things could be much better than expected. But trying to guess Vladimir Putin is a mug’s game. And in the meantime, the news is not good. Britain, as a major importer of goods and for that matter energy, is very sensitive to increases in international prices and we are going through an energy and price squeeze in much of the world. And since our domestic ability to generate income has not improved over the past year, these higher costs mean we are all, as a nation, worse off. Britain is much poorer than last year – and this will be reflected in the OBR’s forecasts. But the point of the kitchen wreck is not just to deliver all the bad news at once, but to announce some cures – however difficult they may be. And that’s where the fall statement really comes in. What do we expect from the autumn statement? What previous chancellor Kwasi Kwarteng had so far presented as a brief update on the state of public finances and the government’s fiscal plan has turned into something much bigger. There will be spending cuts in real if not nominal terms and tax increases. There will be warnings of two difficult years ahead. And while Mr Hunt will stress that these “difficult decisions” will help give the government room to cut taxes when the economy has recovered, the light at the end of the tunnel will feel a long way off. There are a few reasons for this. The first is that after the market chaos of the past few weeks, the Treasury wants to make it absolutely clear to investors that it has a plan to restore public finances. And he has a habit of overcompensating in such moments. One of the things that almost certainly worried investors in September was that the mini-budget put the national debt on an ever-increasing trajectory. The main task the chancellor is focusing on this time around is to change that trajectory so that the national debt falls within five years. This is where the much-discussed concept of a “black hole” comes in. What is the concept of a “black hole”? The “amazing black hole” the Treasury has talked about in recent weeks is actually something very simple: the amount of spending cuts/tax increases it would take to reduce the national debt over five years. This equates to around £50-60bn, once you factor in the things Jeremy Hunt has already reversed. Now, these numbers are subject to huge changes, as they are based on imprecise estimates and the state of the economy is pretty unclear anyway. But the bottom line here is that the Treasury is willing to over-compensate, just as it under-compensated in the mini-budget, sending a pretty clear signal to the markets that it has a plan to reduce debt over the medium term. And to achieve that goal, a lot of bad news will be jettisoned: public sector wage settlements, departmental spending, tax rises on the wealthiest, freezes on personal allowances. Then there is the energy price guarantee and what will happen next year, namely a significant reduction scheme to follow the £2,500 average price cap currently in place. Use Chrome browser for more accessible video player 2:22 Explain the “black hole” in finance How could the Tories reduce the £60bn ‘black hole’? Is Sunak’s goal unrealistic? But the other reason Rishi Sunak wants to make the kitchen sink the bad news now is because he has another date in mind: 2024. He believes that if the Conservatives are to have any chance of winning the next election, likely before the end of this year, they must also show that they have fixed the mess of the last few months and that the light at the end of the tunnel is no longer such a distant prospect. His hope is that by raising taxes today, he will be able to promise to lower them (or even actually implement some cuts) until the election. This may be an unrealistic prospect. If we are to go by the Bank of England forecasts, and that is not a given, we may still be in the depths of a recession in a few years. Even so, Mr Sunak will be hoping he can retrace the path of another previous Tory government, that of Margaret Thatcher. He came to power and, through Geoffrey Howe, delivered a load of bad news in those first budgets. Interest rates and taxes went up. It was the ultimate exercise in kitchen sink but, as the Tory narrative goes, it set the stage for Nigel Lawson’s tax budgets in the late 1980s. Click to subscribe to Sophy Ridge’s podcast on Sunday Others will argue today, as economists did then, that it is madness to “tighten” fiscal policy, even when the UK is in recession and interest rates are on the move. Some will argue – with good reason – that there is no point in shoveling some bad news into the kitchen without addressing the other issues, such as the fact that, above all else, Brexit is reducing trade growth and manufacturing. Political strategists will point out that Thatcher might have lost her second election had it not been for the Falklands War and Labour’s slide to the left. More specifically, she could claim to be cleaning up the mess left by her political opponents. Rishi Sunak cleans up the mess left by his colleagues themselves. However, one thing is certain: this will not be pleasant.
