The chancellor, Jeremy Hunt, will give his autumn statement speech on Wednesday with the UK economy struggling for growth momentum after the sharpest rise in inflation for 41 years.
After Rishi Sunak declared victory on his target to halve inflation this year, Hunt is expected to say he is turning his attention to growing the economy – with heightened speculation this could include tax cuts ahead of next year’s general election. Here are five key charts that will underpin his statement.
Halving inflation
Managing inflation is the responsibility of the Bank of England, and has been influenced by global factors. But that has not stopped the prime minister from claiming credit after the measure fell to 4.6% in October.
Inflation had peaked at 11.1% in October 2022 – the highest annual rate since 1981 – after the Covid pandemic and Russia’s invasion of Ukraine triggered an explosion in goods and energy prices.
After meeting his target, Sunak has suggested the time for tax cuts is coming. Hunt has previously warned tax cuts could increase inflation.
Inflation has fallen far more slowly than anticipated by the Office for Budget Responsibility (OBR) at the spring budget. The Bank also says that the risk of inflation persisting mean it is unlikely to cut interest rates soon.
National debt
Reducing the UK’s national debt was another of Sunak’s five key priorities. To meet this, Hunt has a target to get debt falling as a percentage of gross domestic product (GDP) by the fifth year of forecasts from the OBR. After the bond market chaos following Liz Truss’ mini budget a year ago, it is a target the chancellor is keen to prioritise.
In the spring, the OBR said Hunt could meet the target with £6.5bn of headroom to spare.
However, higher inflation has benefited tax receipts, helping to lower government borrowing compared with the previous forecast.
The Resolution Foundation thinktank predicts the chancellor’s headroom could have increased to about £13bn, but reports suggest it could be even higher. It is against this backdrop that Hunt is being called on to use some of the windfall to cut taxes.
Economic growth
Britain’s economy has been more resilient than anticipated this year, helped by a sharper than expected fall in energy prices and consumer demand for goods and services. The OBR is likely to revise up its growth forecasts for the current financial year, from a collapse of 0.2% to growth of 0.6%.
However, growth over the longer term is likely to remain weak, as the economy struggles with the impact from 14 consecutive Bank of England rate increases that hit household spending power and business investment plans. On top of this, growth is likely to be held back by Brexit trade barriers, worker shortages, and lacklustre productivity growth.
The Bank has warned there is a 50-50 chance of a recession by the middle of next year, while forecasting growth of less than 1% in each of the next two years – less than half the annual average rate between 1998 and 2007.
Tax cuts
Sunak has indicated that he plans to turn attention to tax cuts, pre-empting his chancellor’s autumn statement in a speech on Monday – a highly unusual move just days before a major tax and spending event.
Tax as a share of national income is at the highest level in 70 years, amid sluggish economic growth and rising pressure on public services from an ageing population.
Millions of workers are being dragged into paying more income tax by a six-year freeze on income tax thresholds until 2027-28, which is expected to bring in £54bn for the Treasury – a main reason for the improved public finances. Should Hunt maintain this policy, any tax cuts are likely to represent a shuffling of tax policy, rather than an outright reduction.
However, critics have warned the chancellor against cutting taxes for wealthier households amid the continuing cost of living crisis, especially if any giveaways were paired with cuts to benefits or further public spending restraint.
Business investment
Hunt is aiming to focus his autumn statement on supporting growth in business investment. The chancellor told bosses on Monday that he planned a “whole range of measures” designed to encourage firms to invest in the UK.
Britain has historically lagged behind other leading economies for business investment, but has fallen further back in recent years after a period of political and economic instability amid the Brexit vote, Covid pandemic and repeated “flip-flopping” of government policy.
Business leaders are pushing for Hunt to make permanent a tax break on investment through a policy known as “full expensing”. The chancellor had said in the spring he would like to do this “as soon as we can responsibly do so”. One option could be for a time-limited extension rather than a permanent change at this stage.
