‘The rhetoric of Osborne... with the policies of Brown’
Welfare bill rises by £90bn as Hunt protects pensioners against inflation but clobbers workers with tax rises
BRITAIN’S welfare bill is to rise by almost £90billion after Jeremy Hunt shielded benefit claimants and pensioners from soaring inflation with a raid on workers.
Economists labelled the “top-heavy tax rises and back-loaded spending cuts” of the Chancellor’s Autumn Statement as “George Osborne rhetoric and Gordon Brown policy”.
Much of the increase in benefits will be funded by a stealth raid on wages and higher levies on business, as part of a £55billion package of tax rises and spending cuts designed to shore up the country’s finances.
The statement reduced the threshold at which the additional 45p rate of income tax is paid, from £150,000 to £125,000, dragging in an extra 232,000 taxpayers just eight weeks after Kwasi Kwarteng attempted to abolish the higher rate. It also cut the tax-free allowances on capital gains dividends, which he labelled “unearned income”.
The Treasury’s own analysis showed that more than half of households will be worse off from measures in the Autumn Statement, owing to the scaling back of energy support from next April. The other 45 per cent will benefit from almost £90billion in higher welfare payments over the next five years.
The Office for Budget Responsibility (OBR), the tax and spending watchdog, said that almost half the increase in welfare spending would come from “progressively larger” bills related to sickness and disability benefits.
Benefits and pensions will rise by 10.1 per cent in April, in line with inflation.
The OBR warned that over the next two years household disposable income would be reduced by 7 per cent. The statement reverses gains in living standards to leave them at the same level as in 2013, underscoring a “lost decade” for the economy. This year’s 4.3 per cent fall represents the biggest drop since records began in the 1950s, as the surging cost of living erodes wages.
Fuel duty is also forecast to rise by 23 per cent next year, adding 12p a litre to the cost of petrol and diesel.
The Chancellor tried to blame the country’s economic woes on the Ukraine war, rather than policy moves by Liz Truss, the former prime minister. He talked about “a recession made in Russia”, to jeers from the Labour benches.
But there was some veiled criticism of Ms Truss and Mr Kwarteng, the former chancellor, as Mr Hunt added: “You cannot borrow your way to growth.”
But his own plans drew unflattering comparisons with the past. Torsten Bell, the chief executive of the Resolution Foundation think tank, said: “Jeremy Hunt delivered an Autumn Statement that combined the rhetoric of George Osborne and the policies of Gordon Brown.”
Mr Hunt gave two leading figures from the New Labour years policy roles yesterday, with Patricia Hewitt, the former health secretary, advising on social care delivery and NHS efficiency, and Sir Michael Barber, the former head of Sir Tony Blair’s No10 delivery unit, advising on skills reform.
Rachel Reeves, the Labour shadow chancellor, claimed the Tories had “lost all credibility” and had led the UK into a “doom loop” of tax rises and low growth.
The OBR said that Britain was already in recession, with the size of the economy on course to be no larger at the end of 2024 than it was when the Tories won a landslide election at the end of 2019.
Britain’s economy is forecast to shrink by 1.4 per cent next year, pushing an extra 500,000 people out of work by 2024, while a decision to freeze the level at which workers start paying income tax until 2028 would create “growing disincentives to work”.
The raid on wages and businesses through frozen tax thresholds is also expected to depress wages and push up tax revenues as a share of the economy to its highest level in peacetime.
Richard Hughes, the OBR’S chairman, said that real-term incomes in five years would be 1 per cent below their pre-pandemic peak in 2019.
He added: “The huge increase in global gas prices over the past year... leaves our country as a whole poorer. So, while government policy can, through spending, taxation and borrowing, alter who in the UK pays for these higher energy costs... it cannot make them go away.” He said the Government had made a conscious choice for a more bloated state. “This higher tax burden pays for a larger state whose total expenditure rises from 39 per cent of GDP before the pandemic to 47 per cent this year, before falling back to 43 per cent in five years’ time,” he said.
The Chancellor also announced £30billion of spending cuts. But Mr Hunt’s decision to delay the biggest spending squeezes until 2025 means the Conservatives will not have to deliver cuts before the next general election, expected in 2024.
The OBR said it expected a million more people to claim sickness benefits over the next five years compared with forecasts six months ago, as the NHS struggles to deal with record backlogs.
Rising long-term sickness means Britain is the only major economy to have had a significant decline in its workforce since the pandemic.
At about £100billion a year by the end of the forecast period, spending on debt interest is also expected to be higher than spending on any single public service bar the NHS.
The tax rises and spending cuts will also not be enough to balance the books, with the Government expected to borrow £69.2billion in five years’ time. David Jones, a former Cabinet minister, told Chopper’s Politics Podcast that “the prospects of Tories winning the next election, if these high taxes continue and if we promise they will continue, are going to become more remote”.
But most of the Tory MPS who had previously opposed Rishi Sunak’s tax rises stayed silent yesterday – a sign of the altered politics after the minibudget caused market turmoil and led to Ms Truss’s removal from No10.