The overall intention of Jeremy Hunt’s Autumn Statement, which provided a £20bn package of tax cuts including a 2% cut in national insurance (NI) and a full expensing scheme for business, was to “make work pay”, says Jeremy Warner in The Telegraph. “Unfortunately, there was one rather big fly in the ointment.” The tax burden won’t actually fall, but instead will rise in each of the next five years, eventually reaching a “new post-war high of 38%”, according to the Office for Budget Responsibility (OBR). “For any Tory chancellor, this is an extraordinarily uncomfortable position.”
The main reason for this is fiscal drag, says Michael Race on the BBC. NI and income-tax thresholds have been frozen since 2021 and Hunt left them untouched. Although high inflation has led many workers to secure pay rises, over the past three years some 2.2 million more people are paying basic-rate income tax of 20% while 1.6 million have been dragged into the 40% tax bracket. According to the Resolution Foundation, households will be on average £1,900 worse off over the course of the current parliament.
The only reason Hunt can afford these tax cuts now is that high inflation has led to “windfall” tax revenues from businesses and households, says The Observer. That money should “rightfully have been channelled towards public spending, to help the public sector” (on which the less well-off disproportionately rely) to meet the rising costs of inflation. Diverting the cash now means a “further round of painful real-term spending cuts” after the next election. The Resolution Foundation finds that “outside the protected areas of health, education, overseas aid and defence, this would mean real-terms per-person public spending falling by 14% a year between 2022-2023 and 2027-2028.”
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Richard Hughes, chairman of the OBR, told MPs that Hunt’s statement carried a “very big fiscal risk”, implying that big public-spending cuts are “unlikely to be maintained”, says Mehreen Khan in The Times. Hunt’s tax and spending plans provide “£13bn in headroom to meet a self-imposed target to have debt falling by 2028-2029”. The OBR warns this headroom has been earned at the expense of departmental spending, which is due to fall by £19bn that year.
The government could, for instance, set out a long-term vision and then focus on strategic goals such as investment, saving and innovation, and make budgets rarer events. If the UK is to escape the low growth and austerity it has been stuck in since 2008, the next government will have to make big changes. As Wolf says: “Politics is performative. Good policy is not.”
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Related articles
- Autumn Statement: Households still face an extra £4,000 tax bill despite NI cuts
- The UK economy might avoid a recession, but conditions will remain hard for many
- Autumn Statement gives boost to benefits with uplift in Universal Credit, plus help for renters and parents
-
Retirement confidence surges – but is it misplaced?One in three now feel ‘very’ or ‘extremely’ confident about their ability to afford a comfortable retirement, but industry data paints a gloomier reality
-
Why your personality type could cost your pension £121kWhether you’re a Type A or a Type B person could have a dramatic effect on your approach to retirement saving and so the size of your pension pot – here’s why
-
Self-employed? Start saving for your pension nowBritons who are self-employed have neglected to build up their retirement fund. They must act now
-
Why is Britain's industrial base crumbling?Opinion More and more factories in the UK are closing, and the government doesn’t seem to care. What’s going on?
-
Scotland's former first minister Nicola Sturgeon leaves behind a toxic legacyOn the left, Nicola Sturgeon is seen as something of a political hero. That makes sense… but only if you exclude her actual record in office
-
Trump’s tariffs are here to stayOpinion Trump's tariffs mean American businesses and consumers will have to pick up the tab
-
Here are four reasons why Britain’s house price crash is comingOpinion The pressure on house prices and property can only get worse with the economy turning down and taxes rising, says Matthew Lynn
-
Will the global boom in defence spending drive economic growth?Defence spending is soaring, and politicians in the UK and Europe are telling voters it will be a major boost to economic growth. But is that really the case?
-
Why strong currency is the key to upward mobilityChange your social status and your life by saving money in strong currencies, says Dominic Frisby
-
'Labour’s next bright idea is a wealth tax – but it won't work'Opinion A wealth tax will make Britain poorer and accelerate the exodus of the wealthy, says Matthew Lynn.
