Hunt commits to ‘face into the storm’ to show that Conservatives can still be trusted to manage the economy

By Gareth Jones

The Chancellor, Jeremy Hunt, today delivered his Autumn Statement in which he pledged to restore stability to the economy, protect high-quality public services and build long-term prosperity for the United Kingdom.

In what was undeniably one of the toughest economic and fiscal backdrops for any financial statement in recent times, Hunt announced that he would ‘face into the storm’ as he set out a package of tax rises and spending cuts designed to repair Britain’s battered public finances, curb inflation and restore market credibility.

Given the sheer amount of recent political turmoil, it is perhaps easy to forget that it has been less than two months since Kwasi Kwarteng’s now infamous ‘mini budget’ took place. Since then, we’ve had a new chancellor, a ‘medium term fiscal plan’ and, of course, a new prime minister. In fiscal terms, we have switched from the government announcing approximately £30 billion of (largely unfunded) tax cuts to £55 billion of fiscal consolidation – made up of £30 billion of spending cuts and £25 billion of tax rises. This dramatic change would be delivered at the same as the UK heads into a long recession, with Hunt noting that OBR predicting that GDP would fall 1.4% next year before recovering in 2024.

Perhaps unsurprisingly, Hunt downplayed the homegrown political issues, preferring to cite global headwinds and stress the role of Putin’s war in Ukraine for energy price rises and inflation, adding that “there may be a recession Made in Russia but there is a recovery Made in Britain.” That said, it is fair to say that Hunt did not shy away from challenge itself, setting out, often in sombre terms, the details of tax rises and spending cuts, while also aiming to provide the reassurance that the government would also be fully focused on tackling the cost-of-living crisis and rebuilding our economy.

Seeking to close off potential Labour attacks framing the Conservatives as the ‘party of the rich’, the Chancellor made a point of saying he would protect the vulnerable and be a ‘compassionate government’. Supporting this claim, the Chancellor emphasised that tax rises would target the well off, with a key headline measure being the reduction in the threshold for the 45p additional rate of income tax from £150,000 to £125,140. Taxes would also be increased on dividends and capital gains.

That said, it was also clear that much of the funding would come through “stealth” rises in taxes that would impact all earners – with the thresholds for income tax, National Insurance and Inheritance Tax being maintained at current levels for a further two years to 2028, which in the context of inflation pushing up workers’ pay, would raise billions of pounds.

On energy, major savings would be delivered through reforming the Energy Price Guarantee beyond April 2023, with the energy price cap rising from £2,500 to £3,000. Hunt committed to a new nuclear power at Sizewell C, while also making clear he had no qualms about introducing windfall taxes – both on oil and gas producers and on electricity generators.

On public spending, there was targeted increases for schools and the NHS, but elsewhere there would be significant real terms cuts, but with much of these delayed until after the next general election (with public spending will be limited to 1% for three years from 2025 to 2028).

There were a number of announcements on supporting growth and innovation, with the Chancellor committing to reforming retained EU law in key areas such as financial services, digital technology, life sciences, green industries, and advanced manufacturing. However, this statement felt like a far cry from ‘mini budget’ growth plan from two months’ ago.

In fact, those in the Conservative Party that support a low tax economy and extensive supply side reforms were likely to be disappointed in much of today’s statement, but this is clearly a judgement call made by the Chancellor and new Prime Minister Rishi Sunak. At a political level. Sunak and Hunt recognise that the Conservative Party’s fortunes at the next election are still likely to rest on whether they are more trusted on managing the economy than Labour. This Autumn Statement was designed to send a clear message that they will prioritise financial stability and market credibility above all else, while also challenging the Labour Party to accept some of the post-election planned cuts or say how their reversal would be funded.