The UK chancellor’s autumn assertion is prone to be comparatively uneventful – but extraordinarily vital. Although some headline-seeking tax cuts are rumoured, sluggish financial progress and chronic inflation go away little scope for main coverage bulletins.
That mentioned, the fiscal replace is among the final alternatives for the federal government to set out its financial imaginative and prescient forward of the subsequent common election. Here’s what to be careful for when Jeremy Hunt takes to his ft.
Back in January, the prime minister introduced his high 5 priorities for 2023: halving inflation, rising the financial system, bringing down the nationwide debt, lowering NHS ready lists and cracking down on unlawful immigration.
The first three of those ambitions fall squarely inside the chancellor’s financial remit. The official forecasts printed alongside the autumn assertion will reveal whether or not the UK is on monitor to fulfill these targets.
Rishi Sunak has already declared victory on inflation after it was introduced that the Consumer Prices Index fell to 4.7% within the 12 months to October 2023.
This represents a big discount in comparison with the ten.7% year-on-year rise in costs recorded on the finish of 2022. But it additionally signifies that inflation has not slowed anyplace close to as quickly as the federal government anticipated earlier this 12 months, leaving many households struggling to pay the payments.
The fall has been pushed primarily by decrease vitality costs and the Bank of England’s rate of interest hikes slightly than the federal government’s personal coverage selections – though the chancellor can take credit score for rejecting requires tax cuts that might properly have made inflation worse.
On progress, the Bank of England just lately prompt that the financial system has flatlined because the begin of the summer season, doubtlessly shrinking over July, August and September. This is unlikely to push progress beneath zero for the 12 months as an entire, however it nonetheless means a smaller financial system and decrease tax revenues, making it tougher to scale back nationwide debt.
Even if the autumn assertion reveals that Sunak is on target to hit his financial targets, voters might not view narrowly avoiding stagnation as an achievement value celebrating.
Inflationary positive factors
Persistent inflation can have a silver lining – for the chancellor at the very least. As a results of higher-than-expected progress in costs and wages, the federal government may have collected extra income from households and companies than it predicted again in March. This provides Jeremy Hunt additional money to play with, and a few Conservative backbenchers have already known as for it to be spent on tax cuts.
But inflation additionally causes issues for the federal government. It signifies that cash already put aside for issues like colleges, hospitals and policing is not going to stretch as far. It additionally signifies that folks on advantages, that are solely uprated retrospectively, have successfully been even worse off than anticipated.
So will the federal government use its inflationary positive factors to offset these inflationary losses? The chancellor appears unwilling to search out extra cash for public providers, even when confronted by widespread industrial motion and a public sector which is falling aside. Benefits and tax credit usually rise in keeping with the September Consumer Prices Index, which ought to imply a 6.7% improve from April 2024, however some imagine the Treasury will squeeze welfare recipients additional.
The assertion will present the primary replace to authorities forecasts because the cancellation of the HS2 line between Birmingham and Manchester. Most of the £25 billion already spent on the scheme has gone in direction of the London to Birmingham hyperlink, however spending on the Manchester leg of the route was scheduled to ramp up considerably over the subsequent few years.
The prime minister has promised to “reinvest each penny” of the £36 billion saved into various transport upgrades together with trams, practice stations, roads and bus providers. But given the lengthy lead occasions concerned in transport tasks, it appears unlikely that any new plans will function within the autumn assertion.
Instead, the chancellor might choose to financial institution the financial savings – conveniently conjuring up cash that might but be used for pre-election tax cuts.
Perhaps crucial function of the autumn assertion can be one which neither the federal government nor the opposition will need to spotlight: specifically, the dimensions of the spending cuts at the moment baked into the UK’s fiscal plans.
Taxpayers might be forgiven for considering that, with the UK tax burden on target to hit file highs, the federal government is awash with cash. The reverse is the case, courtesy of huge ranges of spending to deal with Covid and the cost-of-living disaster triggered by Russia’s invasion of Ukraine. Coupled with rising borrowing prices and public providers which have been disadvantaged of funding for over a decade, UK funds stay underneath stress.
As the Resolution Foundation thinktank has identified, as soon as post-election fiscal forecasts are adjusted to mirror the federal government’s pledge to extend defence spending to 2.5% of GDP, they quantity to a renewed wave of public sector cuts “comparable in tempo to these overseen by George Osborne within the early 2010s”.
In the 2010s, when cash was low-cost and inflation was low, authorities didn’t borrow to take a position, a transfer that a few of these accountable now view as a mistake. Partially because of that agenda, policymakers at this time face far harder trade-offs between tax rises and spending cuts.
Nick O'Donovan is a former Labour Party adviser.