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Chancellor vows tax hikes and spending cuts needed to ‘face economic storm’

Chancellor of the Exchequer Jeremy Hunt (Stefan Rousseau/PA)
Chancellor of the Exchequer Jeremy Hunt (Stefan Rousseau/PA)

Chancellor Jeremy Hunt will promise a plan to weather an economic “storm” as he risks a backlash by unveiling a £54 billion package of tax hikes and spending cuts.

He will insist to MPs on Thursday that his autumn statement puts the UK on a “balanced path to stability” as he tackles the “enemy” of inflation, which has soared to a 41-year high.

Mr Hunt will say his “difficult decisions” are necessary to keep mortgage rates low and tackle the rocketing energy and food prices intensifying the cost-of-living crisis.

But Tories on the right of the party are already voicing anger about the prospect of raising taxes, while energy bill support will be scaled back and public services face cuts.

ECONOMY Inflation
(PA Graphics)

The Chancellor will insist his strategy “protects our long-term economic growth” while being “compassionate” to the most vulnerable on society.

“We aren’t immune to these global headwinds, but with this plan for stability, growth and public services – we will face into the storm,” he is expected to tell the Commons.

The long-awaited independent forecasts from the Office for Budget Responsibility (OBR) will also be published and are expected to detail bleak prospects for an economy teetering on a recession.

Mr Hunt will vow policies that will “work together” with the interest rate-rising Bank of England as he “makes sacrifices” in the form of £30 billion of spending cuts and £24 billion in tax rises over the next five years.

His package will stand in stark contrast to his predecessor Kwasi Kwarteng’s unfunded splurge of tax cuts less than two months ago, which further dented the UK’s finances.

The Resolution Foundation calculates that the so-called mini-budget made the financial shortfall £30 billion bigger, while the Bank’s governor Andrew Bailey said it caused a long-lasting “knock” to the UK’s reputation.

Mr Hunt will warn that “high inflation is the enemy of stability” as it sends food and fuel bills soaring, causes businesses to fail and raises unemployment.

“It erodes savings, causes industrial unrest, and cuts funding for public services. It hurts the poorest the most and eats away at the trust upon which a strong society is built,” he is set to say.

Conservative Party Conference 2022
Former chancellor of the Exchequer Kwasi Kwarteng (Stefan Rousseau/PA)

“Families across Britain make sacrifices every day to live within their means, and so too must governments because the United Kingdom will always pay its way.

“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. But it depends on taking difficult decisions now.”

Labour warned that Britain is “falling behind on the global stage”.

Shadow chancellor Rachel Reeves said: “The country is being held back by 12 years of Tory economic failure and wasted opportunities and working people are paying the price.

“What Britain needs in the Autumn Statement today are fairer choices for working people, and a proper plan for growth.”

The Liberal Democrats warned stealth taxes accompanied by a “barrage of bills” and rising mortgages will leave a typical family £4,900 worse off next year.

Sharon Graham, the general secretary of the Unite union, warned Mr Hunt “workers are ready to take a stand”.

“He can choose to inject investment into the NHS and deliver a fair pay deal – or he can leave it as it is today, in danger of fatal collapse,” she said.

Prime Minister Rishi Sunak has warned that inflation is the “enemy we need to face down” but insisted the decisions in Thursday’s autumn statement would be “based on fairness, they will be based on compassion”.

Mr Hunt is expected to impose stealth taxes by freezing the rates at which workers begin paying higher rates, drawing more into higher brackets as inflation soars.

These are likely to be accompanied by a raising of the minimum wage, and a lowering of the threshold for when the 45% top rate of income tax comes in from £150,000 to £125,000.

The windfall tax on oil and gas giants is expected to be increased and widened to electricity generators.

But the energy bill support package unveiled by Liz Truss is expected to be made less generous from April when the average bill is set to rise from £2,500 to £3,000.

Mr Hunt will set out whether benefits and state pensions will rise in line with inflation.

He is expected to allow local authorities to further raise council tax without referendums and delay Boris Johnson’s lifetime cap on social care costs.

Among the Tory critics, former cabinet minister Esther McVey has warned she will not support tax rises without the scrapping of the “unnecessary vanity project” of HS2.

Former business secretary Jacob Rees-Mogg told ITV’s Peston he would vote for the budget so as to not bring the Government down, but warned he opposes tax cuts which he believes “risks making a recession worse”.

Simon Clarke, who was in Ms Truss’s Cabinet during her disastrous mini-budget, warned Mr Hunt not to “throw the baby out with the bathwater and overcorrect” by imposing too many tax hikes.

Asked if he would vote for the autumn statement, Mr Clarke told BBC Radio 4’s PM programme: “We have to see what the package is but I always do my best to support the Government and I very much hope I can.

“I hope they will strike a balance which leans much more to spending reductions than tax rises to balance the books.”

Tory former chancellor Lord Clarke said Mr Hunt has to push ahead despite “howls of rage” from some Conservatives as they “go ape”.

“There are some pretty wild right wing people and populist people in the House of Commons at the moment, but most of them aren’t quite so mad as to drive the Government into an election at the moment which would cost a very high number of them their seats,” he told Sky News.

Senior Tories including former home secretary Priti Patel, chair of the powerful 1922 Committee of Conservative backbenchers Sir Graham Brady and former justice secretary Brandon Lewis wrote to Mr Hunt demanding a fuel duty freeze “to stimulate growth”.

The Chancellor will seek to allay the criticism by going to the 1922 Committee on Thursday.

He will hope that his package will reduce the need for the Bank to further hike interest rates, with experts already pencilling in an increase from 3% to 3.5%.