Britain is facing the sharpest fall in living standards for generations, as the chancellor confirmed the UK is now in a recession expected to last until 2024.
In an autumn statement designed to rein in inflation and restore financial stability, Jeremy Hunt deployed stealth taxes totalling £25bn and £30bn of cuts to public services to fill a £55bn gap in the government’s books.
He also set a course for austerity in public services like police, transport and local government, providing no extra cash to offset soaring inflation for the next three years and slashing expected increases in the following three by £36bn.
In a bleak assessment of the country’s prospects, the Office for Budget Responsibility said that a 7 per cent slump in household incomes will wipe out the gains of the last eight years and leave voters poorer at the next election than they were the last time they went to the ballot box in 2019.
The overall tax burden will reach its highest since the Second World War in 2024, while unemployment will rise by more than 500,000 to reach a peak of 4.9 per cent, said the government’s official forecaster.
Describing the chancellor’s package as “sombre”, the director of the Institute for Fiscal Studies, Paul Johnson, said: “The next few years look grim in terms of living standards, the biggest reduction in household incomes, possibly on record and certainly within recent generations.”
“Painful” interest payments on state debt are at their highest since 1948 at 4.8 per cent of GDP and will soon top £100bn a year, more than spending on any public service apart from the NHS, he said.
Unveiling his statement in the House of Commons, Mr Hunt blamed soaring energy prices and the war in Ukraine for “a recession made in Russia”.
But his Labour shadow Rachel Reeves said the government had forced Britain into a “doom loop” of low growth leading to higher taxes, lower investment, squeezed wages and cash-starved public services.
In stark contrast to Liz Truss’s tax giveaway mini-Budget that spooked markets in September, Mr Hunt’s plan will see 55 per cent of households worse off as a result of changes including:
– A two-year extension to 2028 in the freeze on thresholds for income tax, national insurance and inheritance tax which will see hundreds of thousands dragged into higher rates.
– A cut from £150,000 to £125,140 in the starting point of the highest 45p rate of income tax.
– An increase from £2,500 to £3,000 in the cap on the average household energy bill from April, offset by additional targeted payments of £300 to pensioners, £150 to the disabled and £900 to welfare claimants.
– A hike from 3 to 5 per cent in the maximum annual increase in council tax, which the Treasury expects almost all local authorities to implement in full.
Disowning the “sugar rush” dash for growth disastrously attempted by Ms Truss and her chancellor Kwasi Kwarteng, Mr Hunt told MPs: “You can’t borrow your way to growth. Sound money is the rock upon which long-term prosperity rests.”
Tax expert Anthony Whatling, of Evelyn Partners, said the number of people paying the 40p higher rate of income tax would rise to 8 million by 2028 as a result of today’s decisions – double the 4 million in that band when Rishi Sunak initially announced the freeze in 2021.
And numbers paying the 45p top rate will jump from 236,000 when it was first introduced in 2010 to 875,000 from April next year.
But the bulk of the tax rises and spending cuts imposed by the chancellor will not take effect until 2025, leaving the chancellor open to accusations that he is postponing the worst pain until after Mr Sunak faces voters at the election expected in 2024 – and potentially leaving a poisoned chalice for an incoming Labour government.
Paul Johnson said the “heavily-backloaded” timetable for the consolidation cast doubt on the credibility of it ever being implemented in full.
The windfall tax on North Sea oil and gas companies will rise from 25 to 35 per cent and be extended by two years to 2028, bringing the total expected revenue from the levy to £41bn over six years.
And a new 45 per cent levy on electricity generators will raise £14bn from “excess profits” over the same period.
But Liberal Democrats criticised a “tax giveaway” worth £18bn to financial institutions from cuts to the bank levy and banking surcharge over the next five years.
The party’s leader Sir Ed Davey called on the chancellor to reverse the tax breaks to fund a £3bn mortgage protection fund for homeowners struggling with fast-rising payments.
As expected, Mr Hunt maintained the triple lock protection for the state pension and kept the inflation link for working-age benefits that will see them rise by 10.1 per cent in April.
And he delivered a boost of £11bn to the NHS and social care and £5.5bn for schools over the next two years to deal with crisis conditions.
Businesses benefit from a £14bn cut in rates over the coming five years, with enhanced relief for the retail, hospitality and leisure centres.
The proposed online sales tax on internet retailers was scrapped in favour of higher rates on the warehouses used for distributing orders.
Blaming the UK’s parlous economic state on “unprecedented global headwinds”, Mr Hunt said his package was “a plan to tackle the cost of living crisis and rebuild our economy”.
But businesses warned of a period of flat or sluggish growth, with British Chambers of Commerce director general Shevaun Haviland warning: “In the teeth of a recession, this statement will not increase business confidence.”
TUC general secretary Frances O’Grady said that millions of key workers were now facing “years of pay misery” due to the “brutal” squeeze on public sector budgets.
“The Conservatives crashed the economy – now they are making working people take the hit,” she said.
Ms Reeves accused Mr Hunt of picking the pockets of the entire country with “a Conservative double whammy that sees frozen tax thresholds and double-digit inflation erode the real value of people’s wages”.
