As Hunt sat down, the Office for Budget Responsibility released its latest economic and fiscal outlook.
The OBR says that despite the new support with energy bills, living standards are going to fall by 7% over the next two years.
That’s a dire outcome, wiping out eight years of growth.
The OBR says:
Over £100bn of additional fiscal support over the next two years cushions the blow of higher energy prices – but the economy still falls into recession and living standards fall 7% over two years, wiping out eight years’ growth.
Over the medium term, around £40bn in tax rises and spending cuts – in roughly equal measure – offsets higher debt interest and welfare costs and gets debt falling as a share of GDP.
The fall in living standards next year will be the biggest on record, so since at least the mid-1950s, the OBR adds:
On a fiscal year basis, RHDI per person (a measure of living standards) falls by 4.3% in 2022-23, which would be the largest since ONS records began in 1956-57.
That is followed by the second largest fall in 2023-24 at 2.8%.
This would be only the third time since 1956-57 that RHDI per person has fallen for two consecutive fiscal years – the last time this happened was in the aftermath of the global financial crisis.
This chart shows the scale of the hit to living standards, as inflation hammers households.
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In the autumn statement Jeremy Hunt confirmed that the bank corporation tax surcharge is being cut from 8% to 3% from April next year. Rishi Sunak originally proposed this when he announced plans to raise corporation tax (which the banks also pay) to 25%.
When the Liberal Democrats were in government with the Tories in the coalition, they collectively introduced a bank levy and the bank corporation tax surcharge is in some respects a successor to that.
According to a Lib Dem analysis, if the government had maintained the surcharge and the levy at the levels they were in 2016, instead of cutting both, it would raise an extra £18bn over the next five years.
Ed Davey, the Lib Dem leader, said:
After all his U-turns, the one thing Rishi Sunak seems determined to press ahead with is cutting taxes for the big banks. He’s got his priorities completely wrong and he is totally out of touch with the British people.
The Conservatives are handing out £18bn in unfair and unnecessary tax cuts for the big banks, while raising taxes on struggling families and pensioners and leaving millions to pay a Conservative property penalty on their mortgage bills. It’s just not right.
The Lib Dems say they would maintain these taxes at 2016 levels and use some of the revenue for their mortgage protection fund, which would help people facing a sharp increase in mortgage payments.
Howard Cox, founder of campaign group FairFuelUK, is alarmed that the fuel duty freeze may not be prolonged past the 2023 spring budget (as the OBR say).
Cox points out that pushing up the cost of fuel will eat into disposable incomes:
This government continues to be fiscally inept and ignores the need to increase all our disposable incomes. That single act would ease the cost-of-living crisis.
Jeremy Hunt didn’t mention this in his statement, but the Office for Budget Responsibility says fuel duty is set to rise by 23% next March.
This will add £5.7bn to tax receipts next year, which would be a record cash increase, the budget watchdog says.
It would be the first time that any government has raised fuel duty rates in cash terms since 1 January 2011.
It is expected to raise the price of petrol and diesel by around 12p a litre, the OBR adds.
Hunt’s statement has been given the thumbs-up by rating agency Moody’s.
Moody’s says the plan for tax increases and tighter public spending goes some way to restoring the UK’s economic credibility, which was hurt by the mini-budget.
Evan Wohlmann of Moody’s explains:
The ambitious fiscal consolidation outlined today by the UK chancellor is a further step towards demonstrating the UK’s commitment to fiscal prudence after the UK’s policy credibility weakened following September’s fiscal statement
However, Wohlmann suggests it will be hard to push Hunt’s plans through:
The polarised domestic political environment and heightened policy unpredictability may undermine efforts to deliver on fiscal consolidation, particularly in light of strong social and political pressures on government spending.
Here is some more reaction to the autumn statement from smaller political parties.
From Alison Thewliss, the SNP’s Treasury spokesperson at Westminster
The Tories trashed the UK economy – and now they are making people pay the price for their failure with a new wave of painful austerity cuts …
The Tories and Labour Party are both in denial about the long-term damage they are causing with Brexit, which is reducing economic growth, lowering real wages, increasing costs, and harming public services. Neither party can be trusted to fix the economy, when they both continue to impose the biggest factor damaging it.
From Sarah Olney, the Lib Dem Treasury spokesperson
This is the cost of chaos budget. Everyone is being forced to pay the price for this Conservative government’s incompetence.
After crashing the economy and sending mortgage bills spiralling, the government is now inflicting eye-watering tax hikes and real-terms cuts to our public services. The country shouldn’t be forced to clean up their mess.
From Adrian Ramsay, the Green party’s co-leader
Whatever Jeremy Hunt claims, this amounts to taking £30bn away from people who need it during a cost of living crisis–both directly and through cuts in services …
We know there is enough wealth in this country for us to avoid the dire economic situation this Conservative government is forcing us into.
The problem is that wealth is concentrated in too few hands, when it should be spread throughout the economy to the benefit of everybody.
The Green Party would introduce a 1% wealth tax on the super-rich and increase taxes on unearned income to ensure there is sufficient money to fund the public services we deserve.
From the DUP’s Ian Paisely
Overall this budget is challenging for households in Northern Ireland and made more difficult due to the poor planning by the former finance minister who failed to set a budget for Northern Ireland despite starting the process in October 2021. Departments face a £650m blackhole partially due to poor budget management by the SF [Sinn Féin] finance minister as well as the Treasury envelope.
(This is confusing. The main reason why Northern Ireland has not passed a budget is because it does not have a functioning executive, and the reason for that is because the DUP is boycotting it because of its opposition to the Northern Ireland protocol.)
From Ben Lake, Plaid Cymru’s Treasury spokesperson
A decade of austerity followed by the pandemic has stretched our public services to breaking point. The Welsh government estimated that their ability to fund vital services will be diminished by £4bn. An additional £1.2bn is clearly inadequate for the task.
The Welsh economy urgently needs proper investment in our underlying infrastructure – from energy, to transport, to digital connectivity. I reiterate Plaid Cymru’s call for the UK government to establish a commission to reform the tax system in a progressive way. That is the only way to provide sustainable funding for our public services.
The bad economic news keeps coming.
The OBR predicts that Britain’s current account deficit is expected to widen sharply, from 2% of GDP in 2021 to 5.8% in 2022.
That will be the highest full-year deficit since ONS records began, mainly driven by a widening trade deficit due to soaring energy prices.
Jeremy Hunt has given the Conservatives some hope that they might win the next general election, and also reassured the markets, says our economics editor Larry Elliott.
Larry has picked out four key points from the autumn statement:
First, there was the repudiation of the Liz Truss approach. The rabbit pulled out of the hat by Kwasi Kwarteng on 25 September – less than eight weeks ago – was the scrapping of the 45% income tax band. Hunt announced that he was reducing the rate at which the 45% takes effect from £150,000 to £125,400. The symbolism was obvious.
Second, the performance of the economy during the current parliament is going to be unreservedly poor. According to the Office for Budget Responsibility, it will take until the end of 2024 before national output returns to its pre-pandemic levels. An entire parliament of zero growth is unprecedented in modern times.
What’s more, households are really going to notice how bad things have got. The OBR says living standards will fall by 7% in total over the two years to April 2024, wiping out the previous eight years of increases.
Third, Hunt did what he could to dress the statement up as progressive. The in-line-with-inflation increases in benefits and the state pension, the bit of extra funding for the NHS and schools, and the increase in the “national living wage” were designed to divert attention from the extended freezing of tax allowances and spending cuts in non-protected Whitehall departments.
Finally, Hunt has potentially left himself with the scope to cut taxes or increase spending in the run-up to the election. Judged by his new rules on borrowing, the chancellor’s measures over-deliver by about £10bn. That leeway could easily be wiped out if the economy performs even worse than expected, but as things stand the aim will be to dispense some goodies before polling day.
The government has confirmed that it will enact legislation to grant formal regulatory powers to a new regulator with a remit to crack down on the behaviour of tech firms including Google, Facebook and Apple.
The Digital Markets Unit, which has been set up in shadow form within the Competition and Markets Authority pending the granting of official powers, could fine firms billions of pounds if they do not follow a code of conduct based on “fair trading, trust and transparency” when dealing with rivals and third parties.
Delivering today’s autumn statement, Jeremy Hunt said:
We will legislate to give the Digital Markets Unit new powers to challenge monopolies and increase the pressure to innovate.
The DMU will enforce a code of conduct that includes, for example, assessing the terms on which digital publishers trade with the tech firms, such as the commercial terms around the republishing of “snippets” of content, to ensure they are fair to “prevent [them] from taking advantage of power and position”.
Owen Meredith, the chief executive of the News Media Association, an industry body, said:
By acting to give the DMU the teeth it needs to level the playing field between news publishers and the tech platforms, government has moved forward with its stated objective of placing journalism on a truly sustainable footing. As the main investor in trusted journalism in the UK, the news media sector has a vital role to play in our democratic society as we face up to the serious challenges ahead of us.
Jason Furman, who chaired Barack Obama’s Council of Economic Advisers, says it’s an important step forward.
The average band D household in England faces paying an extra £250 in council tax by 2027-28, the Office for Budget Responsibility says.
Councils are expected to lift council tax by 5%, now that the government has removed the requirement to hold a referendum.
In his speech, Jeremy Hunt referred to “more council tax flexibilities” which he said would help boost funding for the social care sector.
The Treasury estimating that 95% of councils will raise rates by the maximum amount.
This is an increase from the current 3% levy, with the new total being comprised of 3% in general council tax and 2% for the adult social care precept.
The OBR explains that this will rake in billions of pounds more:
This reflects the decision to give councils in England increased flexibility to raise council tax bills without the need for a local referendum, which is expected to result in bills rising by around 5% a year over the next five years.
This change is expected to yield £4.8bn a year by 2027-28, equivalent to increasing the average band D council tax bill in England by around £250 (11%) in that year.
As we covered this morning, allowing councils to lift council tax without a referendum is unpopular with voters. So there could be a backlash in the May local elections.
James Jamieson, the chairman of the Local Government Association, says:
Local government is the fabric of the country, as has been proved in the challenging years we have faced as a nation. It is good that the chancellor has used the autumn statement to act on the LGA’s call to save local services from spiralling inflation, demand, and cost pressures.
While the financial outlook for councils is not as bad as feared next year, councils recognise it will be residents and businesses who will be asked to pay more. We have been clear that council tax has never been the solution to meeting the long-term pressures facing services – particularly high-demand services like adult social care, child protection and homelessness prevention. It also raises different amounts of money in different parts of the country unrelated to need and adding to the financial burden facing households.
Turning away from the autumn statement for a moment, my colleague Peter Walker has news of someone who does not have to worry about a 7% fall in living standards. According to a new declaration in the register of members’ interest, Boris Johnson can now command more than £270,000 a time for giving a speech.
When Rishi Sunak delivered his spring statement earlier this year, the Office for Budget Responsibility said it was going to take the tax burden (taxation as a share of GDP) to its highest sustained level since the second world war.
The tax burden is still forecast to reach a postwar record later this decade – only now it will peak at an even higher level. Here is the chart from the OBR report saying so.
The OBR says:
Taking forecast and policy changes together … the tax burden rises from 33.1 per cent of GDP in 2019-20 to 37.1 per cent of GDP at the forecast horizon, 1.0 percentage point higher than forecast in March and its highest sustained level since the second world war.
Despite cuts in departmental budgets, total public spending also rises – from 39.3 per cent of GDP in 2019-20 to 43.4 per cent of GDP in 2027-28 – 2.9 percentage points higher than predicted in March, reflecting higher debt interest and welfare spending raising cash spending, and the energy-shock-driven smaller economy.
https://www.theguardian.com/politics/live/2022/nov/17/autumn-statement-2022-live-jeremy-hunt-to-unveil-budget-plans-as-labour-says-12-years-of-tory-economic-failure-holding-uk-back-rishi-sunak-latest-updates Autumn statement 2022 live: OBR says living standards to fall 7% as Hunt confirms millions to pay more taxes | Politics