Looking ahead to the Autumn Statement

By William Gould

So far this week, Rishi Sunak has risen to the occasion at the G20 Summit by calling out Sergei Lavrov over Russia's war in Ukraine, while encouraging top economies to reduce their dependence on Russian exports and provide more financial support for Ukraine. Mr Sunak even went as far as to call China a 'systematic challenge to the UK', though he moved away from his predecessor Liz Truss's decision to label the country a "national security threat".

But while Sunak may have found the confidence to restore Britain's diplomatic credibility on the world stage, both he and Chancellor Jeremy Hunt, face a more difficult challenge of restoring confidence within the British economy.

On Thursday, Mr Hunt will deliver the Autumn Statement, the government's second financial package in under two months, where he is expected to dismantle what was previously announced in September's mini budget.

While the specific details of the Autumn Statement won't be known until the speech itself, the Prime Minister and Chancellor have already warned that measures within the statement won't be easy.

Last Sunday, on his way to the G20 summit in Bali, Sunak warned that Britain would be punished by the markets if there were no tax rises and spending cuts within the forthcoming statement, while Hunt, speaking to the BBC's Laura Kuenssberg, warned that every taxpayer would have to see a rise in contributions.

From the outset, the Chancellor is expected to impose over £35bn worth of spending cuts and £20bn worth of tax rises to bridge the gap between what the government raises and spends. Most of the spending cuts are expected to be "efficiency savings" from government departments and will likely involve Whitehall job cuts and real-term reductions in public sector pay to combat inflation.

Another expected announcement is the extended freeze on income tax thresholds to 2027-28, which is expected to generate £30bn in revenue as forecasted by the Bank of England. However, with rising labour shortages and rising wages in cash terms, such a move risks pushing more workers into higher tax bands, resulting in reductions to take-home pay. The Centre for Economics and Business Research recently stated that the freeze could result in three million workers paying more income tax, with 2.2 million of these being pushed into the higher tax bracket.

Hunt is also considering reintroducing the 50p income tax rate and may reduce the £150,000 threshold at which people start paying the 45p tax rate, to around £125,000. It is also rumoured that Hunt may look to raise £1bn by freezing the current inheritance tax threshold for an extra two years – until April 2028, which would result in more people paying the tax.

Another expected tax rise is the council tax limit in England, which is rumoured to go up to 5%. The rise would help increase funding for public services and social care without the government directly raising taxes but would also increase pressure on household budgets and contradict the Conservative Party 2019 manifesto, which guarantees people a final say on council tax and vetoing "excessive rises".

It is also rumoured that the windfall tax on oil and gas companies will rise from 25 per cent to 30 per cent in line with Sunak's "energy profits levy", which was first introduced by Sunak last May. Although popular with the public, some Conservative MPs have already criticised the move for discouraging long-term investment and as also shown by last week's Prime Ministers' Questions, Starmer has accused the measures of being 'too weak'.

The Chancellor has also been rumoured to extend the time frame for which the windfall tax applies and include electricity generators as part of the tax. However, it remains to be seen whether he will address any loopholes to prevent oil and gas companies from offsetting tax liabilities through investing profits in the UK, an issue recently exemplified by Shell not being liable for paying any Windfall Tax, despite reporting profits of £25.4bn over the past year.

These are just some of the main measures expected to be announced by Hunt on Thursday in what will surely be a contentious Financial Statement. However, the Chancellor and PM will look to express 'fairness and compassion’ in all decisions and reassure the Country that the statement does not signal a reversion back to Austerity.

Despite the Chancellor looking to squeeze public spending and raise taxes, these measures are expected to be more even in ratio compared to the measures undertaken by George Osbourne. It is also expected that the Chancellor will raise benefits in line with inflation and protect the government's commitment to the pensions triple lock, given its popularity with Conservative voters and backbench MPs. Additionally, on social care, it is expected that the Chancellor will postpone the introduction of the social care cap for at least two more years, which may lead to the cap being scrapped altogether come the next General Election.

Of course, it's too early to measure how significant the measures announced in Thursday's Statement will compare to the austerity agenda of George Osbourne. But the effect of Thursday's Statement will be widely felt in people's abilities to pay bills and manage the rising cost of living. When adjusted for rising prices, public sector wages have only risen 2.7% and continue to be behind the rising rate of inflation. On energy bills, the Chancellor is expected to support certain groups, including pensioners and place a cap on rates before announcing a more targeted approach next April. However, this will be seen as an abandonment of Truss's "energy price guarantee" and will likely lead to rising bills for most households.

Thursday's Statement may also risk causing further fractures to Party unity Beyond the rise in tax rates which goes against the Party's 2019 manifesto, the expected freezing of the current inheritance tax threshold risks alienating considerable numbers of Conservative backbenchers, which could lead to further political pushback. The rumoured cut to defence spending by 2 per cent also risks an all-out conflict between Sunak and Ben Wallace, the Defence Secretary, who has previously threatened to resign if the government breaks the current commitment to increase spending to 3 per cent by 2030.

So, looking overall at Thursday's Autumn Statement, it is clear that the Chancellor will be delivering strong medication to take control of inflation. But whether the announcement will deliver the necessary conditions to restore confidence in the economy remains to be seen. What can be assured, through rising bills and mass industrial action planned over the next couple of months, is the fallout over the Autumn statement will be anything but easy to navigate for both the Chancellor and Prime Minister.

Stay tuned for our full analysis of the Autumn Statement coming later this week.