Jeremy Hunt will launch a vicious round of tax hikes and spending cuts today as he vows to “deliver strong public finances”.
The chancellor tonight said “families across Britain make sacrifices every day to live within their means” and that “so too must governments” as he prepared to lay the ground for a second round of austerity.
Hunt is expected to outline a combination of tax hikes and spending cuts in his fiscal statement to raise up to £60bn and get government borrowing under control.
This is expected to include hikes to council tax, stealth income tax increases and an extension of the windfall tax on energy producers.
It has also been speculated the chancellor will lift dividends and capital gains tax rates.
Hunt has argued fiscal consolidation is needed after the Covid-19 pandemic and a series of energy packages drastically increased the UK’s debt pile and September’s mini-budget drove up the government’s borrowing costs.
He is expected to say that a period of belt tightening is also needed to help control inflation.
“We are taking a balanced path to stability – tackling the inflation that eats away at a pensioner’s savings and increases the cost of mortgages to families, at the same time supporting the economy to recover,” Hunt will say in his statement to the Commons.
Hunt’s statement comes against a bleak economic backdrop in which historically high inflation risks tipping the UK into a two year recession, the longest recession on record.
Figures out yesterday revealed prices climbed 11.1 per cent over the last year, the fastest acceleration in 41 years and much higher than the Bank of England’s estimates.
The Office for Budget Responsibility today is likely to signal that anaemic growth will burn a massive hole in the public finances.
Analysts warned the chancellor risks worsening the country’s economic woes by bombarding it with too many tax hikes and spending cuts.
“There’s a trade-off between announcing immediate tax rises/spending cuts, which would help win back credibility but would also risk amplifying the incoming recession,” James Smith, developed markets economist at ING, told City A.M.
And the National Institute of Economic and Social Research said over tightening could “extend the low growth trap”.
Bank governor Andrew Bailey yesterday said the country had been hit by a “sequence” of shocks – the pandemic and Russia’s invasion of Ukraine – that have made it poorer, further setting the grim climate for Hunt’s statement today.
The UK’s reputation on the international stage had been “damaged” by former Prime Minister Liz Truss’ calamitous mini-budget in September, Bailey added.
Markets will be scrutinising Hunt’s statement closely to judge whether the UK’s finances are heading on a more sustainable path.
After the mini-budget, gilt yields fired to a more than 20 year high and the pound reached a record low against the US dollar.