Autumn statement: Chancellor sets out tax rises and spending cuts in the face of economic storm
Jeremy Hunt promised to “tackle the cost-of-living crisis” and “rebuild our economy” as he set out plans for tax rises and spending cuts.
The Chancellor said there would be a “shallower downturn” as a result of his measures but the Office for Budget Responsibility (OBR) believed the economy was “now in recession”.
He told MPs his three priorities were “stability, growth and public services”, as he delivered his autumn statement.
The OBR forecast the UK economy would shrink by 1.4% next year, Mr Hunt said.
“The OBR forecast the UK’s inflation rate to be 9.1% this year and 7.4% next year,” he said.
“They confirm that our actions today help inflation to fall sharply from the middle of next year.
“They also judge that the UK, like other countries, is now in recession. Overall this year, the economy is still forecast to grow by 4.2%.
“GDP (gross domestic product) then falls in 2023 by 1.4%, before rising by 1.3%, 2.6%, and 2.7% in the following three years.
“The OBR says higher energy prices explain the majority of the downward revision in cumulative growth since March.
“They also expect a rise in unemployment from 3.6% today to 4.9% in 2024 before falling to 4.1%.”
Mr Hunt was setting out a package of £30 billion of spending cuts and £24 billion in tax rises over the next five years.
His package is in stark contrast to his predecessor Kwasi Kwarteng’s ill-fated plan for £45 billion of tax cuts, less than two months ago, which spooked the markets, pushed up the cost of borrowing and contributed to the downfall of Liz Truss’ short-lived administration.
Mr Hunt said: “I understand the motivation of my predecessor’s mini-budget and he was correct to identify growth as a priority. But unfunded tax cuts are as risky as unfunded spending.”
Mr Hunt said repairing the nation’s finances involved “taking difficult decisions”.
He told MPs: “Anyone who says there are easy answers is not being straight with the British people: some argue for spending cuts, but that would not be compatible with high-quality public services.
“Others say savings should be found by increasing taxes, but Conservatives know that high tax economies damage enterprise and erode freedom.
“We want low taxes and sound money. But sound money has to come first because inflation eats away at the pound in people’s pockets even more insidiously than taxes.
“So, with just under half of the £55 billion consolidation coming from tax, and just over half from spending, this is a balanced plan for stability.”
- The threshold at which the 45p top rate of income tax is paid will be reduced from £150,000 to £125,140, although different rates apply in Scotland.
- The windfall tax on oil and gas giants will increase from 25% to 35% and a 45% levy on electricity generators will help raise an estimated £14 billion next year.
- Tax-free allowance for capital gains will reduce in 2023-24 from £12,300 to £6,000 and again to £3,000 in 2024-25.
- Electric vehicles will no longer be exempt from vehicle excise duty from April 2025, to make the motoring tax system “fairer”.
- Government spending will continue to increase in real terms every year for the next five years, but at a slower rate than previously planned.
- Stamp duty cuts announced in Mr Kwarteng’s mini-budget will now be time-limited, ending on March 31, 2025.
- Jeremy Hunt rejected calls to put VAT on independent school fees and said some estimates believe it could result in up to 90,000 children from the independent sector switching to state schools, adding: “Giving with one hand and taking away with another.”
- Mr Hunt said an extra £2.3 billion per annum will be invested in schools, noting: “Our message to heads, teachers and classroom assistants today is ‘thank you for your brilliant work, we need it to continue and in difficult economic circumstances’. A Conservative Government is investing more in the public service that defines all of our futures.”
- Mr Hunt said he will increase the NHS budget by an extra £3.3 billion in each of the next two years.
- The Chancellor has said he wants “Scandinavian quality alongside Singaporean efficiency”.
- Mr Hunt said he will increase working age and disability benefits in line with inflation, with a rise of 10.1%, costing £11 billion.
- Mr Hunt has accepted a recommendation to increase the national living wage by 9.7%, making the hourly rate £10.42 from April 2023.
- The Chancellor said he will increase state pensions in line with inflation in April, announcing the “biggest ever cash increase in the state pension”.
- Detailing the Barnett formula, Jeremy Hunt said: “The NHS and schools in Scotland, Wales, and Northern Ireland face equivalent pressures so the Barnett consequentials of today’s statement mean an extra £1.5bn for the Scottish Government, £1.2bn for the Welsh Government, and £650m for the Northern Ireland Executive.”
- Shadow chancellor Rachel Reeves said “the mess we are in is the result of 12 weeks of Conservative chaos but also 12 years of Conservative economic failure”.
- The pound fell against the US dollar as investors appeared concerned over the prospects of a lengthy recession and fears Chancellor Jeremy Hunt’s austerity budget will compound the economic woes. Sterling dropped nearly 1% to 1.18 US dollars and was 0.3% lower at 1.14 euros. On the London market, the FTSE 100 Index was 0.7% lower at 7300.4.
More to follow…
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