Good morning. Autumn is such a special season: crunchy leaves on the ground, pumpkin spice lattes, and devastating fiscal events. Today Jeremy Hunt will mark the latter in the House of Commons, standing up to deliver a delayed corrective to the brief reign of Liz Truss and Kwasi Kwarteng that the government hopes will put the public finances on an even keel and set the Conservatives on a better path to the next election.
With £55bn in cuts and tax rises expected, that looks a very tall order – and critics of the government argue that this kind of tightening is exactly the wrong way out of the current crisis. Later this morning, Hunt will set out the specifics of a new era of austerity by telling parliament: “We will face into the storm.” Today’s newsletter is your essential guide to some miserable November weather.
Five big stories
US politics | Republicans have won back control of the House of Representatives, scraping victory from a midterms election that many had expected to be a red wave of wins but which instead turned into more of a trickle.
Myanmar | Almost 6,000 people will be released from prison in Myanmar, with Britain’s former ambassador Vicky Bowman among those to be freed, junta-controlled media has said. Thousands more remain political prisoners in the country, where the military seized back control in a coup last year.
Politics | Dominic Raab has formally requested an investigation into his conduct after two complaints were made alleging he had bullied staff. The justice secretary denies the allegations, saying “I am confident that I have behaved professionally throughout”.
Ukraine | Ukraine’s air defence was probably responsible for a blast that killed two people in south-eastern Poland, the Polish president has said. As fears eased of a military escalation, Nato said Russia was ultimately to blame as Moscow had started the war.
Crime | The actor Kevin Spacey is to be charged with seven more sexual offences against one man between 2001 and 2004. Spacey appeared at the Old Bailey in July to deny five other allegations relating to three men.
In depth: Tax rises, spending cuts and more – what you need to know before Hunt speaks
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The backdrop: inflation up, recession expected, growth down
Jeremy Hunt won’t have been pleased by Wednesday’s inflation figures, but they do at least reinforce the story he and Rishi Sunak are telling about the autumn statement as necessary economic medicine. At 11.1%, the annual inflation rate is now at a 41-year high. Meanwhile, the legacy of Liz Truss’s disastrous tenure is a forecast from the Office for Budget Responsibility that the UK’s annual borrowing will be about £100bn by 2026-27 – £70bn higher than previously expected. The OBR is expected to slash its growth forecast today, too.
The total impact of the measures Hunt will announce to plug the “fiscal black hole”, described by Labour as “Austerity 2.0”, is expected to amount to about £55bn a year. (That notorious black hole is a heavily contested metaphor: more on why below.)
As well as seeing national debt falling, Larry Elliott writes that Hunt wants the impact of his autumn statement to be measured by what happens to inflation because “he knows it is going to fall anyway”. (Inflation measures the change year-on-year, so by spring, the price rises caused by the war in Ukraine will no longer be captured in the annual figures.)
For a fuller explanation of the economic headwinds, see Richard Partington’s useful guide in five charts. And for a sense of the human cost, see Jessica Murray’s piece on a mothers’ support network in Stoke-on-Trent. “We used to get about 10 new families a week; last Saturday we had 22 referrals in one day, and then it went up to 32 the following day,” says the group’s founder, Laura Carter.
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Spending cuts: public sector pay, schools, high-speed rail under threat
Deep breath. Hunt will begin to seek a £25bn to £30bn reduction in public spending by denying departments new money to cover the impact of inflation. That may mean real-term public sector pay cuts. He will also ask them to make efficiency savings to protect frontline services, though there is not much fat left to trim: an October report from the Institute for Government and the Chartered Institute of Public Finance and Accounting (CIPFA) said that the “very few easy and genuine efficiencies” were picked off in the 2010s.
Further ahead, planned spending rises may be cut from 3.7% to 0.5% in 2025 – after the next election – and there could be cuts to unprotected areas like schools and the police.
The chancellor is also expected to postpone for at least two years the introduction of a cap on the amount people in England will pay for social care in their old age, a measure promised by Boris Johnson in 2021. The government has said that all spending on big infrastructure projects is under review. Northern Powerhouse Rail, incorporating a new high-speed line from Manchester to Leeds, appears to be most under threat.
The other big change is to the energy support scheme. Hunt is expected to announce that the price cap will rise so that the amount paid by an average household goes from £2,500 to over £3,000 a year from April. To soften that blow and bring bills down in the long term, he will also set out details of a major energy efficiency programme.
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Tax rises: frozen thresholds, council tax increases, new windfall taxes
Hunt has ruled out headline increases in income tax, national insurance, and VAT. But that doesn’t mean that there won’t be painful real-terms changes. The Treasury has been considering freezing tax thresholds in many areas so that wage inflation will cause more people to pay the higher rates, with income tax bands expected to be frozen until 2028. The amount at which inheritance tax starts to be paid will also be frozen until 2028. Meanwhile, the threshold at which people start paying the top 45p tax rate may be reduced to £125,000.
We are also likely to see increases in the limit on council tax, with the amount local authorities are allowed to put tax up without a referendum expected to go from 2% to as much as 5%. And it has been reported that electric cars could be taxed for the first time.
There’s more. Alex Lawson reported this week that electricity generation companies could face a new 40% windfall tax, which could sit alongside an increase in the existing windfall tax on North Sea gas and oil from 25% to 35%, extended to 2028. Dividend tax relief, capital gains tax thresholds, and tax relief on pensions for higher rate earners could also be targeted. All in all, tax increases could amount to around £25bn a year.
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Protection: minimum wage, triple lock, benefits
While the overall thrust of the budget will inevitably be felt most severely by the worst-off, Hunt and Sunak are keen to show that they are doing what they can to fulfil Sunak’s promise of a “fair and compassionate” approach. So there will reportedly be an increase in the minimum wage for over-23s from £9.50 to £10.40 to offset inflation, and 8m households will receive cost of living payments of £650 that could rise to £1,100 for older people with disabilities.
While there have been hints that the pension “triple lock” is under threat, Sunak strongly hinted on Monday that it would be kept in place. And benefits are also likely to rise in line with inflation next year.
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Criticisms: is there really a ‘black hole’?
All of the measures Hunt will set out are predicated on the theory of a “black hole” in the public finances – an image which creates a powerful sense that if it is not plugged, the UK economy will be dragged in and destroyed. But many left-of-centre economists disagree strongly with that view.
In an opinion piece this morning, James Meadway argues that the black hole, defined as the amount the government needs to save to get public debt falling as a share of GDP within five years, is not a “hard economic fact” but an “insubstantial statistical artefact”, and that filling it will make stagflation – the dangerous combination of high inflation and recession – more likely. Heather Stewart and Larry Elliott’s piece from Tuesday explains a range of alternatives to renewed austerity involving temporary spending increases. And for more on the problems with the metaphors which have governed the public finances since 2010, see this First Edition from May, with the Guardian’s chief leader writer Randeep Ramesh.
What else we’ve been reading
Sport
Football | Brentford striker Ivan Toney could be banned from playing for months after he was charged by the Football Association with 232 alleged breaches of its gambling laws.
World Cup | The Qatar 2022 Supreme Committee has rejected accusations there are fake paid football fans at the World Cup, after videos of Indian expats cheering on the England team in Doha went viral on social media.
Swimming | Australian Olympic great Ian Thorpe has criticised swimming’s governing body for its decision to ban transgender women from competing in female events. “I am for fairness in sport, but I’m also for equality in sport,” the five-time gold medal winner said. “And in this instance, they’ve actually got it wrong.”
The front pages
“Millions face rise in energy bills as Hunt lifts price cap”: that’s the Guardian’s lead story in print this Thursday morning, with most other newspapers also previewing the autumn statement. The Daily Express has “D-day for UK … Hunt’s ‘fair and honest’ plan to fix future”. “We will face into storm, says Hunt as taxes surge” – that’s the Telegraph while the Times says “Hunt’s taxes target the wealthy”. The Metro sums up Jeremy Hunt’s package of measures: “Grin and bear it!” while the i has “Hunt reveals UK’s new age of austerity”. As is its wont, the Financial Times gets a lot into the headline: “Hunt aims big cuts and tax rises at repairing Britain’s frayed reputation”. The Daily Mail looks a little odd alongside its peers with “Supermarkets to ration eggs” while the Sun leads with an FA scandal: “Toney charged over 232 bets”.
Today in Focus
Autumn statement 2022: it’s going to hurt but will it work?
The Guardian’s economics editor, Larry Elliott, looks ahead to Jeremy Hunt’s crucial autumn statement, which is set to usher in a new era of austerity, and explains why it’s likely to fail just like George Osborne’s before it
Cartoon of the day | Steve Bell
The Upside
A bit of good news to remind you that the world’s not all bad
Amir Abdi was born into a farming family in a small Kurdish village in Iran. By 12, Abdi had undergone an experimental surgery that hed left him blind in both eyes. Life as a disabled person from an ethnic minority in Iran was difficult but because of family support, he was able to find his passion in goalball – an indoor team sport for people with visual impairment.
On the pitch Abdi found freedom, empowerment and autonomy. Now Abdi, having migrated to Australia with his little brother, is competing in the national goalball championships in Melbourne. He has also started developing another sport – blind football. Abdi and his team have secured a spot at the world championships in England next year. If they perform well, the Bilbies would make history by qualifying for the 2024 Paralympics.
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Bored at work?
And finally, the Guardian’s crosswords to keep you entertained throughout the day – with plenty more on the Guardian’s Puzzles app for iOS and Android. Until tomorrow.
