Settle On Sunday
One thing is sure, come Thursday you will be poorer than you were the day before
“THINKING the unthinkable,” which we’re told Rishi Sunak and Jeremy Hunt have been doing, is one thing. Doing the unthinkable is quite another.
Next Thursday, all eyes will be on the Chancellor as he delivers the Autumn Budget, laying out details of those “eye-watering decisions” he warned us about when he took over at the Treasury following the debacle of Liz Truss’s 44-day premiership.
Everyone, the UK Government has helpfully trailed, will have to pay more tax. But the PM has been clear those with the broadest shoulders will bear the greater load, stressing how people will be able to judge whether the Autumn Budget is fair and compassionate. “I’m confident,” insisted Sunak, “people will feel it is.”
Which points to the triple lock on state pensions staying and benefits rising with inflation. Manifesto promises will be honoured.
With Hunt looking to find £35 billion of spending cuts plus £25bn in tax rises to fill that nasty fiscal black hole, easy choices don’t exist.
Whitehall sources have been busy bending journalists’ ears with, it seems, everything being on the table at some point. But, of course, politics always comes into play, particularly when the next General Election is less than two years away.
So, expect some sneaky “stealth taxes”. Although by next week, we’ll all be very aware of any attempt to pull the wool over our tear-stained eyes.
The word “freeze” will feature heavily in the media come Thursday. This will relate to thresholds from income tax in England to national insurance, inheritance tax and pension allowances across the UK. There could also be raids on capital gains tax, share dividends and even pension contributions.
But as with the grey vote, governments toy with middleclass earners at their peril.
And then follow all these unappetising tax-raising measures with a populist sugary dessert of extending the windfall tax on energy giants for another five years, bringing in £40bn.
But that’s only half the menu. On the spending side, all Government departments, apart from health but including defence, face real-terms cuts. Some might be pushed back beyond 2024.
But that won’t fool voters as they prepare for “austerity 2.0”. With trade unions due to meet next week to discuss co-ordinating industrial action, Britain’s season of discontent is set to extend beyond winter, deep into 2023. Apprehension is flowing through Conservative ranks as some Tories fear the Chancellor will go too far to recalibrate policy post-Truss but one Sunak ally, backing the PM’s hardline approach, told The Times: “This is existential. We do this or we’re finished. It’s going to be incredibly tough.”
As the clock ticks down to Thursday, the PM will be in Indonesia for the G20 summit, where he hopes to convince international partners Britain is back on track economically as he tries to galvanise governments into targeting inflation. The PM is due back just hours before Hunt’s Commons statement.
As the country gulps at the prospect of the Treasury’s medicine, the background has darkened with the latest GDP figures, showing the country’s economy shrank by 0.2 per cent in Q3, raising the prospect Britain will start 2023 in recession.
The UK is the only G7 member to have seen its economy shrink between July and September and whose economy is still, uniquely among the richest countries, smaller than before the pandemic struck. The reason may lie in one word: Brexit.
The Bank of England has forecast a “very challenging” contraction, which is set to last for two years until the autumn of 2024, an election year, which would make it the longest recession since records began in the 1920s.
The expectation in Threadneedle Street is inflation will begin to fall next year but unemployment will almost double. Recovery, it seems, could take the best part of five years to materialise.
Hunt has pledged to try to make the slump “shallower and quicker” than forecast but warned that people should be “under no illusion there is a tough road ahead” to restore economic confidence and credibility.
“To achieve long-term sustainable growth,” he explained, “we need to grip inflation, balance the books and get debt falling. There is no other way.” He then attached a brighter note, noting how the “fundamental resilience of the British economy is cause for optimism in the long run”.
Unexpectedly, his predecessor at the Treasury hit the airwaves this week in a shameless attempt to shift some of the mountain of shame for the reckless September mini-Budget.
Kwasi Kwarteng claimed he warned Truss to “slow down” and claimed he only bore “some responsibility” for the unholy mess of the Growth Plan. Yet two days later, the then-chancellor was boldly flagging up more tax cuts, which, guess what, spooked the markets further.
Britain doesn’t need future history books to tell us who the guilty people are.
Labour’s Rachel Reeves rightly said it was “disgraceful” for the ex-chancellor to say his inept fiscal statement was not to blame for worsening the public finances.
The most searing criticism, however, came from Hunt, who calmly noted: “When we produced a fiscal statement that didn’t show how we were going to bring our debts down over the medium term, the markets reacted very badly and so we have learned that you can’t fund either spending or borrowing without showing how you are going to pay for it. That is what I will do.”
It’s hard to imagine Truss – having been accused by Kwarteng of making a “mad” decision to sack him – will stay quiet for long in the face of her Greenwich neighbour’s attempt to dump most of the blame at her expensive-looking door.
Next Thursday, eyes may well water as the fourth Conservative Chancellor in as many months sets out his painful prescription for the country’s recovery.
The patient’s verdict on it will come in the ballot box. Chances are, as we all become poorer – and angrier and wiser – it won’t be a positive one.