Chancellor Jeremy Hunt will deliver his Autumn Budget to Parliament on Thursday 17 November, finally offering clarity on how Rishi Sunak’s government plans to restore order to Britain’s public finances.
Having succeeded Kwasi Kwarteng on 14 October following the debacle of the latter’s ill-conceived and ill-timed “mini-Budget” of 23 September – which tanked the pound and brought a swift end to the premiership of Liz Truss – Mr Hunt postponed a statement originally intended for Halloween to buy himself more time.
He is now widely expected to unveil a package of tax rises worth £25bn and spending cuts of £35bn in order to plug a £60bn funding black hole in Treasury coffers and reassure global markets that Britain remains a trusted trading partner.
Mr Sunak has insisted Mr Hunt has no choice but to deliver on the expectations of the markets by putting Britain’s finances on a more even keel through tax hikes, without which the country would risk a return to the chaos that ensued after the Truss-Kwarteng announcement of £45bn in unfunded tax cuts seven weeks ago.
“Financial conditions in the UK have stabilised, clearly,” the PM told reporters joining him on a long-haul flight to the latest G20 summit in Bali, Indonesia.
“But they have stabilised because people expect the government to take the decisions that will put our public finances on a sustainable trajectory, and it’s the government’s job to deliver on that. That’s what the chancellor will do.”
During a round of media interviews on Sunday morning, Mr Sunak’s chancellor warned that everybody in the UK will end up “paying a bit more tax” as a result of what he has to say this week.
“We will be asking everyone for sacrifices. But in a fair society, as we are in the UK, there is only so much you can ask from people on the lowest incomes,” he told Sunday with Sophy Ridge on Sky News.
Mr Hunt confirmed that he expects Britain to be plunged into recession and said that he regards it as his mission to ensure that period is “as short and shallow as possible” by reining in inflation, which currently stands at a 40-year-high of 10.1 per cent and has left the public-facing up to a grim cost of living crisis as the long nights draw in.
He told BBC1’s Sunday with Laura Kuenssberg that a failure to take action now to get the books into balance would mean soaring mortgages.
“If we do nothing, the Bank of England will then increase interest rates,” Mr Hunt said. “They have to do that constitutionally. It’s their job to bring down inflation.
“If we don’t help them with what we do as a government, they’ll have to take that pressure and we’ll see mortgage rates go up, interest rates go up and that will be damaging for families up and down the country.
“A dynamic economy needs low taxes and sound money. But sound money has to come first, because inflation eats away at the pound in your pocket and the pound in your bank account every bit as insidiously as taxes.”
While Mr Hunt has declined to offer precise details about his upcoming announcement so far, he has been tipped to extend a four-year freeze on income tax thresholds by two years to 2027/28, dragging millions more workers into higher rates but saving £6bn a year, according to Institute for Fiscal Studies calculations.
Similar freezes are expected to increase bills for national insurance and inheritance tax.
There has also been speculation that he could reduce the threshold for the highest 45p rate from £150,000 to £125,000 and cut the tax-free allowance for dividends and for capital gains in order to direct some of the pain towards the wealthiest Britons.
But Conservative former Treasury minister Simon Clarke has hinted at the prospect of trouble brewing on this front in the shape of a Tory backbench rebellion when he warned Mr Hunt during his own interview with Sky that he should “make sure we do as much as we can from spending reductions as opposed to tax increases”.
On the question of those reductions, the chancellor indicated that his programme will mean tight settlements for unprotected Whitehall departments, including health and defence, leaving even the embattled NHS to find “efficiencies”.
While acknowledging that the service’s doctors and nurses are coming under “unbearable pressure”, Mr Hunt, himself a former health secretary, said: “There is a lot of money going into the NHS and ... in the context where funding for the NHS is going up, we need to do everything we can to find efficiencies.”
He told Ms Kuenssberg: “Schools, hospitals, all our public services are having to deal with the cost of inflation. What [they] will see is a government that has a plan to tackle the root cause of those pressures ... which are the bills going up, the electricity bill going up, the gas bill going up.
“What we need to do is a combination of short-term support for people who are struggling – and absolutely schools and public services are in that category – but also a plan which says ‘This is how we are going to get through this’.”
Labour’s shadow chancellor Rachel Reeves has cautioned that her opposite number’s plan will inevitably amount to “austerity 2.0” - with Mr Hunt reported to have sought advice from ex-chancellor George Osborne, the architect of that policy.
Elsewhere, Mr Hunt said on Sunday that government support for energy bills will be targeted only at the most vulnerable after April 2023 (Ofgem’s energy price cap was frozen by Ms Truss at £2,500, originally for two years before Mr Hunt scaled it back to just six months).
That move is expected to cost millions of households hundreds of pounds but he told MsKuenssberg that he felt compelled to impose “constraints” on the support.
“We have to recognise that one of the reasons for the instability that followed the mini-Budget was that people were worried that we were exposing British public finances to the volatility of the international gas market,” he said.
“So, there has to be some constraints to it. But, yes, we will continue to support families and I will explain exactly how we’re going to do that.”
That may already have been revealed by The Sunday Times, which reported over the weekend that documents submitted to the Office for Budget Responsibility indicate that Mr Hunt intends to extend the scheme for a further six months at a considerably reduced cost of £20bn.
This could see Ofgem’s guarantee rising as high as £3,100, costing the average household an additional £600.
During the same tour of the Sunday politics studios, Mr Hunt also pledged “a long-term plan for clean energy, green energy and cheap energy” to ensure that Britain is never again left to the mercy of international events like Russia’s war in Ukraine.
He is also expected to raise the rate of windfall tax on North Sea oil and gas companies to 70 per cent and could extend the policy by two years to 2028.
Other possible moves the chancellor could make on Thursday include raising council tax by 3 per cent (as high as it can go without requiring a local referendum) to generate further funds to support social care and public services, hiking pensions and benefits in line with inflation to protect the most vulnerable and postponing the introduction of the lifetime social care cap, ensuring no one pays more than £86,000, from October 2023 one year or even two into the future.
