Hunt has put everyone in the firing line ahead of the autumn statement. Now it’s a case of seeing which grave measures he is prepared to put into practice
On Thursday, Chancellor of the Exchequer Jeremy Hunt will deliver his first
budget, fiscal event autumn statement. The world, the markets and anxious tax payers wait with baited breath to hear what fiscal measures spill out of the Chancellor’s red box and trickle into their PAYE code.
Except, of course, that no one is waiting for anything. Almost every conceivable measure, more than twenty, has been briefed out like never before. Don’t expect them all, but this is an object lesson in expectation management.
Governments rarely keep their powder completely dry until the day itself. In recent years, Chancellors have grown accustomed to ‘testing the waters’ before committing to unpopular policies or to get the bad news ‘out the way’ before unravelling a giveaway or pulling a fiscal rabbit out of forecaster’s hat.
But for Hunt, his extensive briefings serve one simple purpose: to set a grim scene for a difficult set of fiscal measures. As a survivor, if not author, of the coalition and austerity 1.0, he knows full well that Cameron and Osbourne had two years to prepare the nation for what was to come. He, Hunt, had just a matter of weeks. And he decided to make the most of them.
This may be an economic necessity. But it’s also a political strategy. And a brazen one at that.
Jeremy Hunt, with the full blessing of Prime Minister Rishi Sunak, is attempting to do far more than reassuring the markets. He is setting the stage for the next General Election.
This area of economic competence will be the same battle ground the Labour Party will also choose. But Hunt has been around long enough to observe one ingrained political trend: even when people blame the Tories for their current ills, they still trust the Conservatives more than Labour to deliver the tough medicine the economy needs.
Thursday will be Sunak and Hunt’s first chance to ride to the rescue. Having put almost everyone in the firing line, whoever does escape the executioners axe will have reason to feel grateful. So it’s not a case of political bingo. Which of the 20-plus grave options will the Chancellor announce?
Let’s review what’s been briefed so far.
What’s the backdrop?
- He has confirmed that the changes will result in everyone paying more tax and in public spending reductions
- Widely leaked figures suggest that the Office for Budget Responsibility (OBR) will forecast an “eye-watering” budget blackhole of about £70bn, some £30bn higher than previously expected
- The Government is expected to plug this deficit through a 50:50 strategy (50% from tax rises and 50% from public spending reductions)
- Most of the tax rises are expected to be ‘stealth’ increases rather than headline rises. Because these are likely to take the form of threshold freezes, some are already calling this statement the ‘frozen budget’
Tax changes and rises
There has been widespread speculation about the following measures:
- Freeze on income tax thresholds – this would see inflation dragging more people into higher tax bands even though in real-terms their income has not increased (and may have decreased with inflation)
- High-rate tax threshold: there is speculation that the additional rate (45%) threshold will be lowered from £150,000 to £125,000. However, most commentators think this unlikely
- Windfall taxes: the Chancellor is reportedly planning to extend windfall taxes on oil and gas companies to raise an estimated £40bn over the next five years. The government reportedly plans to increase the rate to 30 percent from 25 percent, extending the levy until 2028 and expanding the scheme to cover electricity generators
- Capital Gains Tax: although details are far from clear, there is some speculation that the Chancellor will tinker with Capital Gains Tax (CGT). Some reports suggest the £12,300 annual tax-free allowance for capital gains tax is likely to be halved.
- Dividend taxes: the Chancellor could raise the dividend tax rate, cutting the tax-free allowance for dividends and changing the tax-free allowances for capital gains tax, which is paid on shares and second homes. It is also reported that Hunt is considering halving the tax-free dividend allowance to £1,000
- Council tax: currently, local councils that wish to raise council tax by more than 1.99% have to put such plans to voters in a local referendum. The Chancellor is reportedly considering raising the upper limit in order to enable local authorities to absorb more social care costs
- Inheritance tax: many expect the threshold on inheritance tax to be frozen
- National Insurance: there is some speculation that National Insurance Contributions could again be raised for higher earners, though most commentators think this is politically impossible
- Investment zones: Hunt is reportedly set to scrap the Truss plans for low-tax investment zones after Levelling Up minister Michael Gove lobbied for the funds to be used for urban regeneration instead
Support and benefits
- Energy relief: the Government will reportedly end the energy-relief scheme in April. After this, they will target support toward ‘the most vulnerable’ which is probably pensioners and those on universal credit
- Triple-lock pensions: it is likely that the Government will protect the ‘triple lock’ on pensions (meaning that pensions are always raised in line with the highest of earnings, inflation or 2.5%)
- Pensions contributions: despite this, the Chancellor is reportedly considering freezing the tax-free amount that people can put into pensions savings pots
- Benefits: commentators also expect the Chancellor to raise benefits in line with inflation
- Minimum wage: there is also speculation – which looks as if it’s been briefed from the Treasury – that the living wage will increase from £9.50 an hour to £10.40 an hour
- Cost-of living payments: the same briefing suggests that some eight million households will receive cost-of-living payments worth up to £1,100 a year
- Spending freezes: commentators anticipate that the Chancellor will instruct all departments to stick to their 2021 spending settlements. Given the rampant rise of inflation, this will represent significant real-terms spending reductions
- NHS spending: the National Health Service is expected to be the only area exempt from any spending cuts
- Schools and defence: it is thought likely that spending on schools and defence will not rise as quickly as previously expected
- Capital spending (and HS2): capital spending is likely to be cut. It is not yet clear whether this will impact the flagship HS2 rail project
- Research & development: universities have voiced concerns that the £40bn R&D budget could be an area where the Chancellor looks for spending cuts, with Office for National Statistics (ONS) figures suggesting the country may have hit its 2.4 percent target five years earlier than planned.