Jeremy Hunt sent an icy chill through Britain on Thursday as he tried to fix a gaping black hole in its public finances with a wave of tax rises and spending cuts.
He froze a range of tax thresholds, hitting the wealthy hardest, as part of moves to raisesome £24 billion and scaled back the energy bills support package. At the same time he announced around £30 billion of spending cuts, with the worse of the squeeze potentially coming after the next general election.
However, the Chancellor offered more immediate support to help the most vulnerable in society get through the deepening cost-of-living crisis and some extra short-term funding for the NHS, schools and social care.
The dire state of the economy was laid bare by official figures predicting annual inflation at more than seven per cent next year, when the economy was due to shrink by 1.4 per cent and the unemployment rate was set to rise from 3.6 per cent to 4.9 per cent in 2024.
In an Autumn Statement billed as crucial for Britain’s economy and the Tories’ electoral prospects, Mr Hunt said: “Today we deliver a plan to tackle the cost-of-living crisis and rebuild our economy. Our priorities are stability, growth, and public services. We also protect the vulnerable because to be British is to be compassionate and this is a compassionate Conservative government.”
The bitter medicine in the Autumn Statement aimed to tame sky-rocketing inflation, which reached 11.1 per cent in October, a 41-year high. The UK’s economy has been rocked by Vladimir Putin’s war in Ukraine, the Covid pandemic, Brexit and Kwasi Kwarteng’s disastrous mini-budget.
The Office for Budget Responsibility believes Britain is now in recession, Mr Hunt told MPs, and that the Government’s actions would mean it would be “shallower, and inflation reduced”.
Tax thresholds and the rich
Mr Hunt extended a freeze on a series of thresholds, dubbed “stealth taxes” as they drag more people into paying tax at different rates. The personal allowance before workers pay income tax was set to be frozen at £12,570 a year until 2027-28, as was the threshold of £50,270 above which they start paying the 40p higher rate.
Currently those earning more than £150,000 pay the top 45p rate of tax but this threshold will be lowered to £125,140, which is expected to raise some £800 million by 2026-27 and mean those earning £150,000 or more will pay just over £1200 more a year.
A series of National Insurance thresholds were frozen, including for the self-employed, as it was for inheritance tax.
The capital gains tax allowance of £12,300 will go down to £6,000 in 2023-24 and £3,000 in 2024-25. The dividend allowance on shares which is currently £2,000 will fall to £1,000 in 2023-24 to £500 in 2024-25.
The £85,000 threshold at which firms start paying VAT will also be frozen until 2024-25.
Town halls will be allowed to raise council tax by up to five per cent, without a referendum.
Stamp duty cuts announced in the mini-budget will only remain in place until March 31 2025.
Energy bills
The Energy Price Guarantee will be scaled back so the typical household bill will go up from £2,500 to £3,000 next April, but it is said to still save £500 a year, and bills could have jumped to more than £4,000 for some families. The changes are expected to save around £14 billion a year.
The windfall tax will be extended by increasing the rate from 25 per cent to 35, charging it until 2027, and adapting it for electricity generators so they pay it on extraordinary revenue.
Spending cuts
Whitehall departments’ spending will continue to rise by 3.7 per cent in 2023/24 and 24/25, and then resource spending will go up by one per cent in real terms through to 2027/28.
Mr Hunt insisted the plan would mean “overall spending in public services will continue to rise, in real terms, for the next five years” but it will almost certainly spark warnings of an Austerity II period.
He announced an extra £3.3 billion in each year of 2023-24 and 2024-25 for the NHS. School budgets would get an additional £2.3 billion for each of these years. An extra £2.8 billion will be made available for adult social care in 2024-25.
Overseas aid spending will not return to 0.7 per cent of national income “until the fiscal situation allows”.
Help for poorest
The National Living Wage will increase from £9.50 to £10.42. The state pension will go up in line with September inflation of 10.1 per cent, as will working-age and disability benefits and tax credits.
In a cost-of-living support package, for people on means-tested benefits, households will get £900, pensioner households another £300 and a £150 disability payment.
Business
A £13.6 billion business rates support package from next April includes a property re-categorisation and transitional relief.
OECD Pillar 2 reforms are expected to raise £2.2 billion by 2027-28 from companies with a revenue of more than £750 million. A deal on “Solvency II” arrangements could free up insurance companies to invest billions in infrastructure.
Economic forecasts
Mr Hunt said borrowing would hit £177bn this year and £140bn in 2023/24, an increase of £167bn on March forecasts, before falling to 2.4 per cent of GDP, or £69bn, in 2027/28.
GDP was set to be 4.2 per cent in 2022, then to shrink by 1.4 per cent in 2023, before growing by 1.3 per cent. Annual inflation was predicted to end at 9.1 per cent this year, and 7.4 per cent in 2023.
