Nightmare before Christmas
● Millions now face dramatic collapse of living standards as economy slides into recession ● Swinney warns Scots to brace for higher taxes and more cuts after Chancellor’s statement
Jeremy Hunt was accused of pushing more people into poverty yesterday as the UK government’s forecaster warned of the biggest drop in living standards since records began and Britain officially entered a recession.
The warning from the Office for Budget Responsibility came after the Chancellor told MPS he was having to make difficult decisions in his Autumn Statement to ensure a “shallower downturn”. Those decisions mean the UK facing higher bills, taxes and unemployment, which Mr Hunt blamed on a “recession made in Russia”.
Deputy First Minister John Swinney subsequently warned Scots of raised taxes and further cuts to public spending.
Labour accused the government of
forcing the UK economy into a “doom loop” of worsening conditions, and of refusing to take responsibility for the crisis.
Yesterday’s statement came after financial turmoil caused by the mini-budget launched by Mr Hunt’s predecessor, Kwasi Kwarteng, in September, which some estimates said wiped £30 billion from the public purse.
Now the majority of households face being worse off due to the autumn statement, which confirmed the cap on energy bills will increase from April next year, while the UK’S tax burden rises to its highest sustained level since the Second World War.
The OBR forecast unemployment would rise by 505,000 from 3.5 per cent to peak at 4.9 per cent in the third quarter of 2024. Inflation is expected to be 9.1 per cent over the course of this year and 7.4 per cent next year, wiping out the previous eight years of growth.
Making his statement, Mr Hunt set out plans for almost £25bn in tax increases and more than £30bn in spending cuts. However, in a clear attempt to trap Labour, the cuts were delayed until after the next election, meaning they will also be a problem for the next government.
This could see post-2025 cuts for “unprotected” budgets, even if the NHS, schools, defence and overseas aid is exempt.
Mr Hunt confirmed a windfall tax on oil and gas giants would increase from 25 per cent to 35 per cent, along with a 45 per cent levy on electricity generators. This will help raise an estimated £14bn next year.
The energy price guarantee will rise from £2,500 to £3,000 for an average household’s annual energy bill from April 2023.
Blaming a “global economic crisis” for the changes he was introducing, Mr Hunt said: “There may be a recession made in Russia, but there is a recovery made in Britain.
Anyone who says there are easy answers is not being straight with the British people. Some argue for spending cuts, but that would not be compatible with high-quality public services.
“Others say savings should be found by increasing taxes, but Conservatives know that high-tax economies damage enterprise and erode freedom.”
The Institute for Fiscal Studies (IFS) claimed Mr Hunt’s post-2025 spending plans “stretch credulity”. IFS director Paul Johnson called the statement a “sombre affair”, adding the OBR has forecast “the next two years will see the biggest fall in household incomes in generations”.
“The swing over a couple of months from Kwasi Kwarteng’s fiscal loosening to a big fiscal tightening is a belated recognition of some harsh fiscal realities,” he said.
“The sharp and sustained increase in how much we now expect to spend on debt interest, in particular, has forced difficult decisions elsewhere. At around £100bn a year by the end of the forecast period, spending on debt interest will be higher than spending on any single public service bar the NHS.”
Mr Johnson said the plan was evidently not a return to “[George] Osborne-era targets of an overall budget surplus” as he warned much of the fiscal tightening was “heavily back-loaded”.
“Given the profound uncertainty around the outlook, and the potential economic and social costs of an unnecessarily large up-front fiscal tightening, this is probably the right choice, on balance,” he said. “But delaying all of the difficult decisions until after the next general election does cast doubt on the credibility of these plans. The tight spending plans post-2025, in particular, may stretch credulity.”
The reaction from Tory MPS throughout the statement was sombre and quiet, with cheers less for policy and instead over digs at the Labour party.
Under the measures, the threshold at which the 45p top rate of income tax is paid will be reduced from £150,000 to £125,140 – although different ratesapplyinscotland–meaning someone on £150,000 will pay £1,200 more in tax.
Government spending will continue to increase in real terms every year for the next five years, but at a slower rate than previously planned.
Increases in departmental budgets will be protected in cash terms for the next two years, meaning real-terms cuts due to inflation and pressure on public sector wages.
The NHS budget in England will increase by an extra £3.3bn in each of the next two years, while it was claimed Scotland would get an extra £1.5bn in consequentials.
Mr Hunt told MPS: “We are going to grow public spending, but we’re going to grow it slower than the economy. For the remaining two years of this spending review, we will protect the increases in departmental budgets we have already set out in cash terms.
“We will then grow resource spending at 1 per cent a year in real terms, in the three years that follow. Although departments will have to make efficiencies to deal with inflationary pressures in the next two years,thisdecisionmeansoverall spending in public services will continue to rise, in real terms, for the next five years. ”
Mr Hunt’s budget prompted angry responses from both opposition parties and charities, who accused it of being “Austerity 2.0”.
Lord Bird, founder of The Big Issue magazine, warned balancing the books in the short term meant passing debts on to future generations.
He said: “The policies announced will only serve to push even more people into poverty and, worse, onto the streets. We break the cycle of poverty and injustice now, not perpetuate it.
Shadow chancellor Rachel Reeves said Mr Hunt’s “stealth taxes” were taking billions of pounds from ordinary working people and “the mess we are in is the result of 12 weeks of Conservative chaos, but also 12 years of Conservative economic failure”.
She said: “The Conservatives have crushed our economy, given up on growth and sent inflation through the roof and, as usual, it is ordinary working people who are paying the price.” SNP Treasury spokeswoman Alison Thewliss claimed Scotland did “not vote for this”.
She said: “The OBR say that living standards are to fall by 7 per cent over the next two years. It ought to be of no surprise to anybody that just shy of half of Scots think the UK won’t exit in its current form in the next five years.
“This is a UK so weak that noone would wish to join it. Scotland cannot be forced to stay in broke, broken, Brexit Britain.”