There is never a good time for a politician to deliver an austerity package but announcing tax increases and spending cuts more than halfway through a parliament with a recession just under way is pretty much as bad as it gets.
Jeremy Hunt’s task in his autumn statement was not to make matters worse for the economy, and to give the Conservatives some hope that they might win the next general election. All at the same time as convincing the financial markets that the government was serious about reducing state borrowing.
The chancellor found a simple way of doing this. He announced £55bn of tax increases and spending cuts but delayed the pain. Fiscal policy will actually be loosened slightly this year and next, and by the time the treasury’s measures start to bite in 2024, the hope is that the economy will be out of recession and inflation well down from its current level of 11.1%.
What’s more, the real heavy lifting will not take place until after the next election: a naked attempt to put the Labour leader, Sir Keir Starmer, and the shadow chancellor, Rachel Reeves, on the spot.
There were few surprises in Hunt’s statement, as most of the measures contained in the autumn statement had been trailed well in advance. But four things that stood out.
First, there was the repudiation of the Liz Truss approach. The rabbit pulled out of the hat by Kwasi Kwarteng on 25 September – less than eight weeks ago – was the scrapping of the 45% income tax band. Hunt announced that he was reducing the rate at which the 45% takes effect from £150,000 to £125,400. The symbolism was obvious.
Second, the performance of the economy during the current parliament is going to be unreservedly poor. According to the Office for Budget Responsibility, it will take until the end of 2024 before national output returns to its pre-pandemic levels. An entire parliament of zero growth is unprecedented in modern times.
What’s more, households are really going to notice how bad things have got. The OBR says living standards will fall by 7% in total over the two years to April 2024, wiping out the previous eight years of increases.
Third, Hunt did what he could to dress the statement up as progressive. The in-line-with-inflation increases in benefits and the state pension, the bit of extra funding for the NHS and schools, and the increase in the “national living wage” were designed to divert attention from the extended freezing of tax allowances and spending cuts in non-protected Whitehall departments.
Finally, Hunt has potentially left himself with the scope to cut taxes or increase spending in the run-up to the election. Judged by his new rules on borrowing, the chancellor’s measures over-deliver by about £10bn. That leeway could easily be wiped out if the economy performs even worse than expected, but as things stand the aim will be to dispense some goodies before polling day.