Despite weeks of expectation management, the fiscal statement was even more painful for taxpayers than we anticipated.
There may not have been any surprise giveaways, but there were plenty of stealth takeaways. Here’s five things the chancellor doesn’t want you to know about his measures today:
1. This is taxpayer austerity
Spending cuts won’t come before the election, meaning this ‘fiscal consolidation’ is simply austerity for taxpayers rather than chunks of the public sector. Hunt has increased spending by £9.45bn next year - on top of spending increases already announced (mainly the energy price subsidies). The total spending increase for 2023-24 is now £34.5bn. An £8.7bn reduction won’t come until 2025-26. So taxpayers will take a kicking over the coming years to pay for a raft of spending increases, with most tough decisions seemingly kicked into the long grass. Hunt decided to prolong the crippling cost of government crisis.
2. Growth is now on the back burner
Hunt stated it was one of his priorities, but this is little more than lip service. The UK is already in recession and set to shrink further next year. Granted we’ve had Ukraine and covid. But over the long term, we estimate the measures today will reduce growth by around £32bn. And that doesn’t include the impact of hiking corporation tax to 25 per cent. As the Institute of Economic Affairs said, this is a recipe for managed decline.
| Autumn statement measures impact on: | Baseline | Scenario | Difference |
|---|---|---|---|
| GDP level after 10 years (£bn) | 3,219.3 | 3,183.0 | -36.2 |
| GDP growth after 10 years | 3.62% | 3.51% | -0.12% |
| Investment level after 10 years (£bn) | 295.5 | 281.9 | -13.6 |
| Investment growth after 10 years | 2.81% | 2.33% | -0.48% |
| Average weekly earnings level after 10 years (£bn) | 717.79 | 709.71 | -8.08 |
| Average weekly earnings growth after 10 years | 2.90% | 2.78% | -0.12% |
3. The council tax bombshell will go off before May next year
Today’s council tax bombshell will hit households hard, with budgets announced in coming months for new bills landing on doormats in April. Local authorities are undoubtedly facing higher overheads, but significant rate increases can’t be justified while vanity projects and exorbitant salaries persist. Instead of a local referendum on the hikes themselves, voters will instead express their view on five per cent rises in the coming local elections.
4. Working taxpayers get screwed
The stealth hikes are not painless. They could be equivalent to around a 4p to 6p rise in the basic rate of income tax by 2027-28 (depending on whether you count the NICs freeze), and will affect around 3.2m new and 2.6m higher-rate taxpayers. For those on the lowest pay, rises in thresholds were the closest they got to tax cuts from the Tories - which are now being frozen. A worker on the living wage earns around £18,500 a year, now, and pays 10.3 per cent of that (£1,900) in income tax and employee national insurance. By 2027-28, that bill will rise to 13.7 per cent (£3,007). Hard-fought pay rises will go straight into the chancellor’s pocket. The government has guaranteed years of falling living standards, and voters will notice.
5. The welfare state will become more generous
Hunt threw the kitchen sink at those on benefits. On one hand, he will ‘ask’ 600,000 universal credit claimants to meet with a work coach and spend £280m to crack down on fraud and error. On the other, benefits will be uprated by inflation. Social housing rent rises will be capped at seven per cent; they'll receive money via the energy price guarantee; and those on means-tested benefits will get additional cost of living payments next year.