Many times over the last couple of months it has felt as though the UK government have started an unintended journey towards economic chaos with no real idea how to stop their runaway express. With the Autumn Statement now scheduled for mid-November Peter Webb, our Head of Tax Advisory, shares some thoughts on what could be coming down the track.
Liz Truss campaigned as a traditional Tory tax cutter and Kwasi Kwarteng delivered on her plans in a disastrous “mini budget” on 23 September with unfunded, unscrutinised aggressive tax cuts that spooked financial markets and damaged the UK’s financial credibility, incurring an almost unheard of censure by the International Monetary Fund.
In the days that followed, Liz Truss’s financial plans came apart with startingly rapidity in one stunning U-turn after another, costing both Kwasi Kwarteng and Liz Truss their jobs. For the moment both have been confined to be mere footnotes of political history and what will surely be a favourite answer to a pub quiz question in years to come: “Who was the UK’s shortest serving Prime Minister?”
Jeremy Hunt, the new Chancellor, was due to outline revised fiscal plans on 31 October but that statement has now been postponed until 17 November and will take the form of a full Autumn Statement. Given the past few weeks, it almost feels that the shift could have been decided upon to avoid potential ‘Halloween Horror Show’ headlines if the announcements once again ‘spooked’ financial markets.
A need for additional scrutiny
Whatever is revealed will be accompanied by full forecasts from the Office of Budget Responsibility; scrutiny that was sorely lacking for Liz Truss’s plans. The Treasury have said the Statement will “contain the UK’s medium-term fiscal plan to put public spending on a sustainable footing, get debt falling and restore stability”. So what could be announced?
Pensions, benefits and spending
The pensions triple lock (a guarantee that the state pension will rise every year by whichever is highest of inflation, earnings growth or 2.5%) will be “re-examined”. Increasing benefits in line with inflation will also be assessed. The Prime Minister and Chancellor have both stressed that difficult decisions will need to be made on spending, with potential double-digit cuts in the offing to reduce the rumoured £50bn black hole in Government finances caused by the recent market upheaval.
National Insurance
Now that the reversal of the 1.25% increase in National Insurance Contributions has been voted on in Parliament it will be very difficult for Jeremy Hunt to reinstate that rise. But perhaps a separate levy could be applied to earnings which will be ringfenced for health and social care spending.
Responding to the energy crisis
The energy price cap will continue through this winter, but relief has been scaled back from two years to just six months. Announcements for further support for the most vulnerable are expected and would be welcome, offering some longer-term clarity to many.
What’s clear is that there will be a huge amount of attention focused on these announcements, and a real sense that the Government have to get this right. Rishi Sunak acknowledged on Friday 28 October that “difficult decisions will have to be taken to get British government borrowing and debt on a sustainable path”. It’s not going to be easy, and there could be some real surprises announced on 17 November. As always we’ll bring you our analysis of the statements as they emerge.
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