Chancellor Jeremy Hunt plans a big package of spending cuts and tax hikes in Thursday’s autumn statement after warning that UK public borrowing will be some £70 billion higher than expected.
According to an ally of the Chancellor, the Office for Budget Responsibility estimates that a worsening economic outlook will push government debt to almost £100bn in 2026-27. In its March forecasts, Britain’s fiscal watchdog had calculated a budget deficit of just £31.6bn for this year.
Hunt acknowledged the need to take action after receiving dire forecasts from the OBR. “We will see that everyone pays more taxes. We will see spending cuts,” he told the BBC on Sunday.
Prime Minister Rishi Sunak said Britain will be punished by financial markets if it fails to raise taxes and cut spending to clean public finances.
Liz Truss’ disastrous ‘mini’ budget in September unleashed market turmoil, including a sharp rise in government borrowing costs, and culminated in her resignation as prime minister.
Sunak told reporters en route to the G20 summit in Indonesia: “Financial conditions in the UK have clearly stabilized, but they have stabilized because people expect the government to make the decisions that will affect our public finances.” set a sustainable course. and it is the government’s job to make that happen.”
About half of the £70bn increase in borrowing is being driven by higher expected costs of servicing the government’s debt, the rest is coming from a weaker economic growth outlook hurting tax receipts and inflation is increasing spending on welfare and state pensions .
The deterioration in underlying public finances estimated by the OBR is significantly larger than those calculated by think tanks such as the Institute for Fiscal Studies and the Resolution Foundation and has underpinned the Treasury Department’s search for measures to clean up the treasury.
This is likely to result in tax hikes and spending cuts building up to between £55bn and £60bn annually five years from now, enough to ensure the UK debt burden falls in 2027-28, the final year of the latest OBR projections.
Hunt’s ally said the fall statement will focus heavily on fixing public finances because it’s difficult to whitewash OBR projections, but that person insisted the Treasury Department is not deepening the coming recession with excessive tax hikes and spending cuts. The OBR declined to comment.
Hunt will focus on containing growth in daily public service spending after the government’s existing plans for the Whitehall departments expire in 2025.
If this spending remains unchanged in real terms, the Financial Times calculates that it would save around £27 billion a year by 2027-28.
Hunt, meanwhile, intends to freeze many annual allowances and thresholds across the tax system to secure more revenue as people’s incomes rise amid high inflation.
He calls for symbolic tax increases for richer people to show that those with the broadest shoulders pay the most.
The 45p income tax ceiling threshold is expected to drop from an income of £150,000 to £125,000. The annual capital gains tax allowance of £12,300 is likely to be halved.
Hunt said he would unveil the government’s new plan on Thursday to support households with rising energy bills from April.
The government is currently capping electricity and gas bills for all households following a rise in wholesale energy prices, but is expected to focus on pensioners and the needy going forward.
Officials said the government’s overall fiscal stance as the UK economy enters a recession is “incredibly supportive” for households through help with energy bills, but the most important thing is to help the Bank of England rein in inflation.
Sunak suggested that if the government focused now on stabilizing public finances, it would eventually be able to cut taxes and increase spending on public services.
“By doing so, we will be able to lower people’s taxes over time and support public services,” he said.
The Chancellor stressed that the government’s autumn declaration aims to boost economic growth, citing the bottlenecks in the labor market caused by 600,000 mostly elderly people who have chosen not to work.
But as officials stress that the declaration will primarily be fiscal consolidation, Hunt plans to outline obstacles to growth that the government will focus on addressing in the coming months.
Additional reporting by Daniel Thomas in London
https://www.ft.com/content/133589fd-ba37-4963-9113-e1c47c28d4d7 Hunt has been warned of a £70 billion increase in UK government borrowing