Autumn Statement 2022: Tough Decisions Needed

Mercia Group
1 November 2022 12:12

The planning for this month’s Autumn Statement moved into gear this week as Chancellor Jeremy Hunt met Prime Minster Rishi Sunak. During the meeting, the two men agreed that ‘tough decisions’ will need to be made.

The meeting took place on Halloween, the day the Medium-Term Fiscal Statement was originally due. Instead, it has been pushed back to 17 November and upgraded to a full Autumn Statement.

Planning and expectation management

The date of the fiscal statement was moved back to give the government more time to decide what measures they will take in the Autumn Statement.

According to multiple news reports, the Chancellor and Prime Minister agreed that ‘tough decisions’ would be needed in regard to tax rises. This is being deemed necessary due to the £50 billion fiscal black hole left by the September’s disastrous Mini Budget that cost Kwasi Kwarteng and Liz Truss their jobs.

One of the mistakes made at the Mini Budget was a lack of expectation management in the lead up. This appears to be a mistake that the current government are determined not to repeat, so warnings have leaked out of the Halloween meeting.

50/50

It appears Mr Hunt is looking at saving money in a ratio of 50% tax rises and 50% spending cuts - indicating that £25 billion in tax rises could be on the cards. Mr Sunak and Mr Hunt are understood to have ruled out increasing the rates of income tax, national insurance and VAT, as to do so would breach the Conservative Party’s 2019 manifesto.

It was already expected that income tax and national insurance thresholds would be frozen until 2026, but now this could be extended for two extra years. Public sector pay could also be targeted by the Treasury, which is reportedly looking at offering workers a 2% rise across the board.

Such an increase is likely to fuel further threats of strike action from union bosses who are demanding an inflation-matching 10% rise for members, including NHS staff and teachers.

There will also be cuts to public services, although health and defence spending have both been ringfenced. This could mean changes to benefits and/or the triple lock on state pensions.

‘Going to be rough’

A Treasury source told newspapers:

It is going to be rough. The truth is that everybody will need to contribute more in tax if we are to maintain public services. After borrowing hundreds of billions of pounds through Covid-19 and implementing massive energy bill support, we won’t be able to fill the fiscal black hole through spending cuts alone.