Everybody in the UK will be paying more tax as a result of Thursday’s autumn statement, chancellor Jeremy Hunt has said.
Speaking four days ahead of the crucial mini-Budget, Mr Hunt confirmed he expects the UK to plunge into recession and said his goal was to make it “as short and shallow as possible” by bearing down on inflation.
But the chancellor was put on notice of potential rebellion by backbench Tory MPs, as former cabinet minister Simon Clarke – a close ally of tax-slashing former PM Liz Truss – said that he should opt for spending cuts over tax rises “as much as he can”.
He also confirmed that government support for energy bills will be targeted at the most vulnerable after April, in a move expected to cost millions of households hundreds of pounds.
The chancellor confirmed his statement will include both tax rises and spending cuts to deal with the blow to the UK’s finances caused by the additional cost of energy, which he said was the equivalent of funding a second NHS each year.
And he said it will also feature “a long-term plan for clean energy, green energy and cheap energy” to ensure that Britain is never again at the mercy of international events like Russia’s war in Ukraine.
Speaking to Sky News show Sunday with Sophy Ridge, Mr Hunt said: “We are all going to be paying a bit more tax.”
But he pledged to ensure that the most vulnerable are protected.
“We will be asking everyone for sacrifices,” he said. “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 said his statement would show “compassion and support for the most vulnerable people”.
Economist Paul Johnson, director of the Institute of Fiscal Studies, said that Mr Hunt’s comments could mean “some substantial additional taxes”, which could include the reinstatement of the 1.25 per cent hike in national insurance announced by Rishi Sunak earlier this year but cancelled by Liz Truss.
But he said that, with many people not paying income tax or national insurance, the only way for the chancellor to ensure that everyone pays more tax would be to increase VAT – something insiders have suggested Mr Hunt is not planning.
Mr Hunt signalled that the government’s energy support plan – holding all households’ gas and electricity bills to an annual average of £2,500 for the six months to April at a cost of £60bn – is to be slashed back once the winter is over.
The statement will set out plans for “short-term support for people who need it, but also a long-term plan to really change our approach to energy”, he said.
And he told BBC1’s Sunday with Laura Kuenssberg that he will impose “constraints” on the support, which is currently available to all households.
“Will it be uncapped, unlimited?” he said. “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.
“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.”
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, according to The Sunday Times.
This could see the guarantee rising as high as £3,100, costing the average household an additional £600.
Mr Hunt insisted that Britain would get through the difficult period ahead, telling Sky: “There are going to be very difficult decisions, but we are a resilient country and we have faced much bigger challenges in our history.”
The chancellor is understood to be considering a package of £25bn worth of tax rises and £35bn of cuts to public spending to fill a gap of up to £60bn in the government’s finances.
He has indicated that this will mean tight settlements for unprotected Whitehall departments, and said today that NHS too will have to find “efficiencies”.
While acknowledging that NHS doctors and nurses are coming under “unbearable pressure”, he added: “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”.
Mr Hunt told 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’.”
The chancellor is also expected to extend a four-year freeze on income tax thresholds by two years, dragging millions more workers into higher rates. Similar freezes will increase bills for national insurance and inheritance tax.
And reports suggest he may reduce the threshold for the highest 45p rate from £150,000 to £125,000 and halve the tax-free allowance for capital gains tax in order to target some of the pain onto the wealthiest Britons.
The chancellor is expected to extend the windfall tax on North Sea oil and gas companies by two years to 2028.
He told Kuenssberg that a failure to take action to get the books into balance would mean soaring mortgages.
“If we do nothing, the Bank of England will then increase interest rates,” said Mr Hunt. “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.”
In an indication of the resistance Mr Hunt will face from his own party if he chooses to increase taxes, Mr Clarke said that spending cuts should bear the bulk of the burden of the £60bn consolidation.
The former Treasury minister told Sky: “I would urge Jeremy to make sure we do as much as we can from spending reductions as opposed to tax increases, noting tax is at a very high level and faced with the recession risk.”
But Labour’s shadow chancellor Rachel Reeves warned against “austerity 2.0”, saying that public services are already “on their knees”.
She told Sky: “Seven million people are waiting for an NHS operation or support. If you look at our schools, our class sizes are increasing. Teachers are increasingly having to fund the basics out of their own money.
“So, I don’t believe that austerity 2.0 after the austerity that we’ve gone through for the last 12 years is the right approach, which is why I’m arguing for two things, both fairer choices on taxes but also, crucially, a plan for growth.”
Ms Reeves acknowledged that Labour will be constrained in its economic plans if it comes to power, blaming the “mess” it would inherit from the Conservatives.
She told Kuenssberg: “I do recognise that an incoming Labour government will not be able to do everything that we want as quickly as possible.
“That is frustrating because the way that the government has managed our economy and our public finances this last decade means that we’ve both got public services on their knees and public finances in a mess.”
Liberal Democrat Treasury spokesperson Sarah Olney said: “Hard-working families look set to be clobbered with yet more unfair tax hikes because the Conservative party crashed the economy.
“This economic chaos has to end.
“When schools can no longer afford to turn on the heating and pay teachers, you know the government has completely messed up. Years of mismanagement of the economy by this government and a disastrous budget has blown a black hole in Britain’s finances. The public will never forgive the Conservative party for this.”
