Jeremy Hunt issued warning ahead of new budget
Vowing to put the country on a “balanced path to stability”, Jeremy Hunt will insist his Autumn statement will grip the “enemy” of inflation, which has soared to a 41-year high of 11.1 percent. Mr Hunt will say his “difficult decisions” are necessary to keep mortgage rates low and tackle the rocketing energy and food prices intensifying the cost-of-living crisis.
But Tories on the right of the party are already voicing anger about the prospect of raising taxes, while energy bill support is likely to be scaled back and public services face cuts.
The much-anticipated fiscal showpiece is also expected to see the triple lock on pensions protected in what would be a massive victory for the Daily Express and campaign group Silver Voices following a relentless crusade.
A staggering 330,000 people have signed our petition demanding the government reinstates the manifesto commitment.
Dennis Reed, Director of Silver Voices, said: “In view of the upward surge in inflation it would be barbarous if the Government did not bow to the force of public opinion and restore the triple lock protection to state pensions on Thursday.”
Mr Hunt will seek to use his hour-long Commons statement to restore the UK’s economic credibility in the wake of Liz Truss’s short-lived administration.
It will mark an abrupt about-turn on Kwasi Kwarteng’s disastrous mini-budget two months ago, which plunged the country into financial turmoil.
His £45 billion package of unfunded tax cuts on top of a massively expensive energy support package, shocked mainstream economists and spooked the markets.
Not only that but the Bank of England was forced to intervene to stabilise the economy.
The Chancellor will insist his strategy “protects our long-term economic growth” while being “compassionate” to the most vulnerable on society.
Mr Hunt will seek to restore the UK’s economic credibility
“As countries all over the world grapple with inflation, our plan reflects British values: we are both honest about the challenges, and fair in our solutions,” he is expected to tell MPs.
“We are taking difficult decisions to deliver strong public finances and help keep mortgage rates low, but our plan also protects our long-term economic growth.
“At the same time, we protect the vulnerable, because to be British is to be compassionate.
“There is a global energy crisis, a global inflation crisis and a global economic crisis.
“But the British people are tough, inventive, and resourceful. We have risen to bigger challenges before.
“We aren’t immune to these global headwinds, but with this plan for stability, growth and public services – we will face into the storm”.
The long-awaited independent forecasts from the Office for Budget Responsibility (OBR) will also be published and are expected to detail bleak prospects for an economy teetering on a recession.
Mr Hunt will vow policies that will “work together” with the interest rate-rising Bank of England with around £60 billion of hikes and cuts.
Thursday’s announcement comes amid rocketing inflation with food prices rising at their fastest rate for 45 years, with the cost of basics such as milk, cheese and eggs surging.
Food price inflation hit 16.2 percent in the year to October.
Energy and fuel costs also rose sharply, pushing the overall inflation rate to its highest level since 1981.
The Chancellor will warn that “high inflation is the enemy of stability” as it sends food and fuel bills soaring, causes businesses to fail and raises unemployment.
“It erodes savings, causes industrial unrest, and cuts funding for public services. It hurts the poorest the most and eats away at the trust upon which a strong society is built,” he is set to say.
“Families across Britain make sacrifices every day to live within their means, and so too must governments because the United Kingdom will always pay its way.
“We are taking a balanced path to stability: tackling the inflation that eats away at a pensioner’s savings and increases the cost of mortgages to families, at the same time supporting the economy to recover. But it depends on taking difficult decisions now.”
Despite the gloomy inflation figures, some analysts believe the worst is now over.
Martin Beck, chief economic adviser to the EY Item Club, said inflation could even plunge to two percent the end of next year.
“The EY ITEM Club wouldn’t be surprised if inflation falls to close to 2 percent by the turn of 2023 and 2024, substantially easing the current squeeze on spending power faced by consumers,” he said. “This would also help lift the economy out of the recession.”
But Labour warned that Britain is “falling behind on the global stage”.
Shadow chancellor Rachel Reeves
Shadow chancellor Rachel Reeves said: “What Britain needs in the Autumn Statement are fairer choices for working people, and a proper plan for growth.”
Mr Sunak has warned that inflation is the “enemy we need to face down” but insisted the decisions in Thursday’s autumn statement would be “based on fairness, they will be based on compassion”.
Mr Hunt is expected to impose stealth taxes by freezing the rates at which workers begin paying higher rates, drawing more into higher brackets as inflation soars.
These are likely to be accompanied by a raising of the minimum wage, and a lowering of the threshold for when the 45 percent top rate of income tax comes in from £150,000 to £125,000.
The windfall tax on oil and gas giants is expected to be increased and widened to electricity generators.
But the energy bill support package unveiled by Liz Truss is expected to be made less generous from April.
Mr Hunt is also likely to set out whether benefits and state pensions will rise in line with inflation.
He is expected to allow local authorities to further raise council tax without referendums and delay Boris Johnson’s lifetime cap on social care costs.
Among the Tory critics, former cabinet minister Esther McVey has warned she will not support tax rises without the scrapping of the “unnecessary vanity project” of HS2.
Former Tory Minister John Redwood called for the Chancellor to give the country a “Christmas present” by cutting taxes.
“The government needs to understand it needs to look after voters as well as worry about markets,” he said.
“The politics of this week require the government to marry Liz Truss’s growth enthusiasm with enough control of the deficit and borrowing to show it is all affordable.
“Do that and they could even make most people happier. That would be a great Christmas present.”
Simon Clarke, who was in Liz Truss’s cabinet during her disastrous mini-budget, warned Mr Hunt not to “throw the baby out with the bathwater” in his autumn statement by imposing too many tax hikes.
The backbench Tory told BBC Radio 4’s PM programme: “I hope they will strike a balance which leans much more to spending reductions than tax rises to balance the books.”
Motoring groups have urged Mr Hunt not to hike fuel duty.
The RAC told him that increased pump prices could push inflation even higher.
RAC fuel spokesman Simon Williams said: “When the prices drivers pay to fill up rise, inflation seems certain to follow.
“That’s something the Chancellor must recognise as he considers what action to take.”
Mr Hunt will hope that his package will reduce the need for the Bank to further hike interest rates, with experts already pencilling in an increase from 3 percent to 3.5 percent.
John Redwood called for the Chancellor to give the country a ‘Christmas present’ by cutting taxes
Inflation will come down next year. Given this week’s high figure it needs to. The Bank of England says so, and they have got that right.
The Bank has done a screeching u-turn of policy. Last year they printed far too much money, kept interest rates too low and allowed plenty of credit to flow.
It was bound to be inflationary.
This year they are doing the reverse, jacking rates up much higher, rationing credit and slowing money growth. That will bring price rises down.
Against this background the government this week has to offer sufficient assistance to people and businesses being squeezed by high energy and food prices, dearer mortgages and the rest.
An austerity budget on top of the Bank’s squeeze would prolong and deepen the recession the Bank is now forecasting. There is no need to do that to bring prices under control. Nor would an austerity budget cut the amount the government has to borrow. If they mistakenly stumbled into a deeper recession that will mean much less tax revenue coming in and more benefit spending going out. In a recession, people lose their jobs, lose their bonuses and have less money to spend. Companies see turnover shrinking, profits falling away and so pay less tax. Borrowing shoots up in a recession.
The government needs to manage the public finances carefully. There is needless or wasteful spending to purge. Let’s begin by telling the Bank of England they should not be selling bonds they own at a big loss. That saves the £11bn in the budget to pay for those losses. Let’s see a renewed attempt to help people off benefits and into work, as there are still well over a million jobs available. Everyone getting a job will be better off, benefit bills will fall and individuals will be paying more tax.
Let’s open up the new oil and gas fields the Uk has discovered. Far better to produce our own.
That way the Treasury will get a big boost to tax revenues, whilst we will reduce the carbon dioxide produced by saving all that extra fuel on transport for the imports.
Set some lower tax rates on enterprise and success and we will grow the economy faster, producing more tax revenue from having more investment and jobs here.
The government needs to understand it needs to look after voters as well as worry about markets. Markets will not be impressed anyway by a longer and deeper recession.
The politics of this week require the government to marry Liz Truss’s growth enthusiasm with enough control of the deficit and borrowing to show it is all affordable.
Do that and they could even have most people happier. That would be a great Christmas present.
It isn’t hard to put a negative spin on the latest UK inflation numbers. According to the Consumer Price Index (CPI), prices of goods and services rose by 11.1 percent in the year to October.
Only 18 months ago, inflation was running at a mere 2 percent or so. And it’s necessary to go all the way back to October 1981 to find the price of goods and services rising at a faster pace than this October. Some of the details of the latest numbers were even more notable – food prices were up 16.4 percent, the biggest increase since 1977.
But beneath the downbeat outlook surrounding the latest numbers, consumers faced with rising prices for energy, food and other essentials can take some positives. The cap on households’ energy bills introduced by the Government in October averted what would have been an even bigger rise in inflation to around 14 percent.
And there are good reasons to think that we may have now seen the worst as far as price rises are concerned.
Inflation this year has been pushed up largely by extraordinary increases in energy prices. However, as we move into 2023, the impact of this on the annual inflation measure should start to dwindle (as long as there isn’t an even bigger increase in prices next year). The cap on gas and electricity bills will last until next April, and recent falls in wholesale gas prices should prevent a steep increase in bills at that point.
And the prices of many commodities, such as oil and metals, have seen significant declines in the last few months, as has the cost of shipping goods around the world. Better news here should gradually feed into lower prices – or at least more slowly increasing prices – that we pay at the petrol pumps and in the shops.
As a result, the EY ITEM Club wouldn’t be surprised if inflation falls to close to 2 percent by the turn of 2023 and 2024, substantially easing the current squeeze on spending power faced by consumers.
This would also help lift the economy out of the recession that the EY ITEM Club has predicted for the first half of next year. Such a fall would also bring inflation back into line with the 2 percent rate targeted by the Bank of England. Indeed, although the EY ITEM Club expects the Bank to raise interest rates over the next few months, it wouldn’t be surprising if an improving inflation picture next year meant 2023 ended with borrowing costs heading back down again.