Hunt promised to “restore trust and confidence in our national finances” and tame high inflation. But he is also political and the autumn statement will be laden with political calculations and potential pitfalls for Labour. With taxes rising for all Britons on Thursday and a new round of austerity looming – Hunt is exploring a £55bn a year budget tightening – the political challenge facing the chancellor is huge.
Hunt’s focus on the cost of living
Rishi Sunak, speaking at a G20 summit in Bali, said Hunt’s main aim on Thursday was to show voters that the Tories had a plan “to bring down the cost of living and contain the rise in mortgage rates loans”. If he does not achieve this, the next election will probably be lost. Curbing inflation is, according to Hunt’s allies, the ultimate economic growth strategy, as it would help lower interest rates, taking the pressure off households and businesses. “It’s all about inflation,” said one. Tory strategists hope that if Mr Hunt can stabilize the economy and gets a lucky break – perhaps an early end to the war in Ukraine or a drop in energy prices – the economy could emerge from recession before the election. Sunak hopes to emulate John Major’s election victory 30 years ago, when he took over from an unpopular prime minister – Margaret Thatcher – and promised a fresh start and a brighter economic future. “It’s 1992 again,” said one Conservative strategist. “By 2024 we could see some green shoots of recovery, we’ll say the tough decisions we’ve taken are paying off and ask ‘What’s Labour’s plan?’ You never know.”
Tax hikes could cause voter backlash
Hunt promised “compassion” would be at the heart of the autumn statement and is expected to increase state pensions, welfare benefits and the minimum wage by around 10%, in line with September inflation. The poor will also get extra help with their energy bills from April, when universal support is due to end. Hunt said Sunday’s tax increases will affect everyone and there is likely to be a voter backlash. But there will be moves designed to prove to working-class voters in the seats that the Conservatives ousted Labor at the last election that the Tories are not going back to typing and helping the rich. Following Liz Truss’ ill-fated tax gift to the rich in her “mini” budget in September, Hunt will cut the top rate of income tax from £150,000 to £125,000 and increase taxes on dividends and capital gains. Anthony Wells, political director at the YouGov poll, said people only support tax increases that fall on people richer than them, while being more tolerant of “stealth” tax increases they “don’t really understand”. Hunt knows this is particularly true of “fiscal backlash”: absorbing more people into the tax system or higher tax brackets by freezing entitlements and thresholds related to income tax and other contributions. It will do this until 2028, raising more than £10bn a year.
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Some spending cuts will be delayed
Wells said polls show the public is only excited about cutting one type of government spending: foreign aid. Hunt will recognize this by freezing aid spending at 0.5% of GDP, saving £5bn a year. Defense is among the other areas where Hunt is expected to squeeze budgets. “People don’t think they’re going to see the results themselves unless someone hacks us,” Wells said. Hunt is expected to renege on promises by Truss and Boris Johnson to increase defense spending. Other cuts are likely to be passed on to local councils to be implemented – thanks to reductions in central government support – although when Tory council chiefs start blaming Hunt, that could be politically awkward. Across-the-board austerity will be extremely painful, so Hunt has decided to delay the biggest cuts until after the next election, in the hope that the economy will start to recover by then, allowing him to reverse some of the proposed cuts, which could to be worth more than £25 billion a year. If the economy flattens, the task of delivering those cuts could well be Labour’s problem anyway. Labor leader Sir Keir Starmer would have to say how he would pay to reverse any of the planned post-election cuts.
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With the aim of setting a trap for the Workers
According to the Tories’ 1992 election book, Major claimed it was a clean break from the Thatcher era, that his government had taken tough decisions and that now the “green shoots” of recovery were coming through. Starmer knows the Tories will try to repeat a similar campaign, arguing Labor would undo Sunak’s hard work, possibly raising taxes to pay for higher spending. Neil Kinnock faced the same allegations in 1992. Meanwhile, Hunt is likely on Thursday to press Labor to either accept the existence of his “fiscal hole” – and thus approve tax rises and spending cuts of around £55bn a year – or show how the party of the opposition will raise taxes. Shadow chancellor Rachel Reeves will dodge the question in a number of ways, including saying the exact size of the budget hole is unclear. He said on Sunday: “We recognize that we will inherit this mess. It will put a limitation on us.” He will argue that Labor will raise taxes in a more “fair” way, including by targeting people who enjoy tax benefits in the UK with non-domiciled status. Alistair Darling, the former Labor chancellor, said the Tories’ strategy would not work, arguing that Truss’ “mini” budget was a major economic event similar to Major General’s Black Wednesday crisis shortly after his election victory in 1992. “Trying to say it will be worse under Labor won’t work this time,” he added.
