Jeremy Hunt outlined a £55 billion ($65 billion) package of tax rises and spending cuts for the UK to plug a hole in the nation’s finances and restore confidence among investors.
The Chancellor of the Exchequer hit the wealthy with higher taxes on wages and dividends and extended a windfall tax on oil and gas companies, telling the House of Commons on Thursday that he was prioritizing “stability, growth, and public services.”
“We take difficult decisions to tackle inflation and keep mortgage rates down,” Hunt told lawmakers as he unveiled his Autumn Statement — a budget in all but name. “But our plan also leads to a shallower downturn; lower energy bills; higher long-term growth; and a stronger NHS and education system.”
Prime Minister Rishi Sunak’s government is pushing through the measures to restore confidence among investors in Britain’s ability to pay its way after a disastrous experiment with deep tax cuts by his predecessor, Liz Truss.
MEASURES ANNOUNCED BY HUNT IN THURSDAY’S BUDGET
Hunt said the aim of his program is to get debt falling as a share of the economy by 2027-28, and to get public sector borrowing over the next five years below 3% of GDP.
The task is enormous, patching up the economic damage wrought by the Covid-19 pandemic, the fallout from Russia’s war in Ukraine, and the disastrous tenure of Sunak’s predecessor, Liz Truss, and her Chancellor, Kwasi Kwarteng, whose massive program of unfunded tax cuts sank the pound and roiled the bond markets.
Hunt — brought in by Truss to replace Kwarteng and steady market nerves, and kept on by Sunak — had already reversed the bulk of that plan before Thursday. While he said Kwarteng had been right to pursue growth, he added that “unfunded tax cuts are as risky as unfunded spending.”
On growth, Hunt said he wanted to spur energy, infrastructure, and innovation. The Treasury will work to boost renewable energy and efficiency programs. It’s also maintaining capital budgets for projects like the HS2 rail upgrade and other transport projects and setting aside more resources for research and development.
“We need to get better at turning world-class innovation into world-class companies,” Hunt said. “Turn Britain into the world’s next Silicon Valley.”
The Chancellor said the Office for Budget Responsibility, the government’s fiscal watchdog, now forecasts the British economy to shrink by 1.4% next year, a downgrade from the previous official outlook for 1.8% growth. He also lowered the prediction for 2024, blaming “global headwinds,” primarily the rise in energy prices stoked by Russia’s war in Ukraine.
“We want low taxes and sound money,” Hunt said. “But sound money has to come first because inflation eats away at the pound in people’s pockets even more insidiously than taxes.”
Other measures outlined by Hunt included saying the government will proceed with a new nuclear plant, Sizewell C, in eastern England and confirmed its commitment to the HS2 high-speed rail project and plans to build more hospitals and roll out super-high-speed broadband.
But he also said public spending will grow more slowly than the economy, and departmental budgets will have real-term spending cuts. He said just over half of the package is made up of spending cuts, with just under half coming from tax rises.
It’s an important moment for the Conservative government, which trails the Labour opposition by about 20 points in the polls with just over 2 1/2 at most before the next general election.
The balance between tax rises and spending cuts is key. Public services have already been pared back for a decade under Tory austerity, and voters have little appetite for more.
Meanwhile, tax rises are anathema to Conservative philosophy, and Sunak’s defeat to Truss in this summer’s leadership contest was in a large part due to his record as Chancellor in putting the country on track to its highest tax burden in seven decades.
By Michael Saichuk