Do not be fooled by boring terms such as “medium-term fiscal plan”. Chancellor Jeremy Hunt’s statement on Thursday November 17 is going to be a whopper.
Firstly, it is the final nail in the coffin of Liz Truss’s vision for the country, concluding a deeply embarrassing chapter for the Tory Party.
Secondly, we will find out what the new prime minister Rishi Sunak’s economic strategy is for the country.
Thirdly, we will be given a clear indication of the difficulties ahead and how it will impact our pockets.
The statement, which Hunt has admitted will effectively amount to a full budget, will be unveiled in the House of Commons.
Ministers hope the announcement will draw a line under a series of humiliating political events.
In just a few months the UK saw three prime ministers, four chancellors, three home secretaries and a botched mini-budget that triggered market chaos.
Hunt’s statement will seek to reassure the markets that Sunak’s government has a grip on public finances.
It will be a stark contrast to the mini-budget unveiled by former chancellor Kwasi Kwarteng last month that triggered Truss’s rapid downfall.
In the simplest terms, expect a shift from swashbuckling libertarianism to serious talk of fiscal responsibility.
Instead of tax cuts and policies helping the highest earners, Hunt’s budget is expected to include spending cuts and tax rises. We’re back to Treasury orthodoxy.
HuffPost UK understands Hunt has been speaking to former chancellors including the architect of austerity George Osborne – who was spotted in Downing Street last week.
Hunt has also recruited Osborne’s former chief of staff Rupert Harrison for a panel of experts to advise him on the economy. It might signal a return to the type of austerity policies seen under David Cameron’s leadership.
Hunt’s statement was originally due to take place on Halloween, October 31, but was delayed so they could make the “right decisions” to manage the British economy.
Not only does moving the date swerve awkward Halloween headlines, but, most importantly, it signals how big the announcement will be.
It has also been upgraded from a “medium-term fiscal plan” to an Autumn Statement – essentially an interim mini budget.
Here, HuffPost UK runs through the major issues to look out for on November 17.
Hunt is expected to cut spending in a bid to get public finances back onto a sustainable footing.
He has already warned MPs that decisions of “eye-watering difficulty” are needed.
The prime minister is targeting up to £50 billion in spending cuts and tax rises, according to reports.
A savings plan being drawn up by Hunt will aim to close a £40 billion forecast black hole and an extra £10 billion surplus to reassure markets.
Hunt has refused to be drawn on the specifics of the package but has signalled that neither the NHS nor defence spending are immune from potential cuts.
Paul Johnson, director of the Institute for Fiscal Studies, said the announcement will likely involve at least some cuts to planned investment and day-to-day spending – such as health, pensions, welfare, education and defence.
One idea under consideration is prolonging the temporary cut to international development aid.
Sunak, when he was Boris Johnson’s chancellor, slashed foreign aid to 0.5 per cent of GDP, saying it would return to 0.7 per cent when the economic situation improved.
He is now expected to use a revised economic outlook to argue it will not be possible to increase aid spending until 2027 or 2028, according to The Times.
The chancellor has refused to say whether benefits will rise in line with inflation, saying he will not make any “firm commitments”.
Benefit payments usually rise every April but they could now be in the firing line as part of Hunt’s cost-cutting spree.
Sunak has also declined to say whether benefits will rise with inflation, something he committed to doing as chancellor.
Asked in the Commons if he would uprate welfare payments, Sunak said: “We will always protect the most vulnerable.”
Should they decide not to uprate benefits in line with inflation, it could set Sunak and Hunt on a collision course with a number of Tory MPs.
There is growing speculation that the state pension triple lock could be scrapped.
The “triple lock” means the state pension is guaranteed to increase each year in line with whichever is highest out of inflation, wages or 2.5 per cent. It is currently suspended until April 2023.
Kwarteng said last month that he and Truss were “absolutely committed” to the triple lock but Hunt has offered no such assurance.
Next April, if the triple lock is restored, pensioners could potentially see their payout rise by 10 per cent, due to inflation running at a 40-year high.
“The costs associated with maintaining the triple lock next year are likely to be eye-watering – which is undoubtedly the reason the UK’s latest chancellor, Jeremy Hunt, is reluctant to commit to the policy,” Tom Selby head of retirement policy at AJ Bell has said.
He said abandoning the triple lock in favour of an earning-linked increase could save the Treasury an estimated £4 billion to £5 billion a year.
However, taking such a tough political decision will undoubtedly set the government on course for a clash with MPs as the triple lock was a manifesto pledge.
One area to look out for is defence. Sunak is thought to be wary of Truss’s pledge to increase defence spending to 3 per cent of GDP.
The new prime minister has previously described such targets as “arbitrary”.
Senior military figures have also warned that the 3 per cent pledge was nothing more than a “mirage”. Lord Dannatt, the former head of the Army, said that “it looks as if defence is going to have to make do with 2 per cent”.
Meanwhile, No.10 has said that: “No decisions have been made on defence spending or significant spending as is custom ahead of a fiscal event.”
However, Sunak will be under pressure from Tory MPs and even international partners after ally Estonia urged Sunak to raise defence spending.
Its foreign minister Urmas Reinsalu told the BBC it was “vital” all Nato countries spend 3 per cent of GDP on defence.
When he was chancellor, Sunak essentially paved the way for Truss’s energy price guarantee – with payments to households to help with spiralling fuel costs.
Truss went even further by capping typical annual household bills at £2,500 for two years.
However, chancellor Jeremy Hunt has now scaled this back so it only runs until April.
It is unclear what Sunak and Hunt will decide to do next but they will undoubtedly pursue a more cautious path than Truss and Kwarteng.
When he ran for leader the first time, Sunak vowed to scrap VAT on energy bills, but it is unclear whether he would stick to this promise.
Office For Budget Responsibility Forecast
A major difference between Kwarteng’s mini-budget and Hunt’s is that this time the announcement will be published alongside a forecast from the Office for Budget Responsibility.
The OBR was created in 2010 to provide independent and authoritative analysis of the UK’s public finances.
They essentially provide a check on the government’s economic announcements as well as providing fiscal forecasts.
One of the reasons the markets were so spooked by Truss and Kwarteng’s mini-budget was that it was not accompanied by an OBR report.
Kwarteng essentially announced £45 billion of tax cuts – and a litany of other measures – without a clear economic forecast to back it up.
The OBR later revealed that it could have produced an economic forecast in time for the “mini-budget”, but was not asked to do so by Kwarteng.
It is expected that the OBR will warn of a recession next year.
One of Hunt’s first acts as chancellor was to reverse “almost all” the tax measures unveiled in September.
It was a hugely embarrassing intervention for the Truss administration, but essential to steady the markets.
The new chancellor restored the planned rise in corporation tax, reversed the cut in the basic rate of income tax and restored the top rate of income tax in a bid to raise around £32 billion for the Treasury.
He went on to hint that tax rises could be on the way as he admitted decisions of “eye-watering difficulty” lay ahead.
A “stealth” rise in income tax, is said to be one measure under consideration by the Treasury, according to The Times.
A prolonged freeze on income tax thresholds could raise £4 billion a year, the paper said.
As chancellor, Sunak froze the personal allowances at £12,750 and thresholds for the higher rate of tax at £50,270 for four years, as well as the additional rate threshold at £150,000.
This was estimated to net the Treasury £8 billion a year but is now expected to raise in the region of £30 billion due to inflation.
The current freeze will cost the basic-rate taxpayer around £500 a year, rising to £3,000 for higher-rate taxpayers. By 2025 about eight million people will be higher-rate taxpayers.
Sunak is said to be keen on extending the freeze for a further two years.
Sunak and Hunt will be looking at extending the windfall tax on gas and oil giants that are raking in massive profits amid the cost if living crisis.
A number of options are open to the chancellor, including raising the windfall tax rate, imposing it for longer and extending it to electricity companies.
When he was chancellor, Sunak introduced the current windfall tax on energy producers to raise £5 billion.
Asked if the PM might extend the tax, Tory party chairman Nadhim Zahawi told LBC Radio they were looking at “everything”.
Pressed on this issue, he added: “I would not pre-empt any decisions but absolutely the chancellor and the prime minister will look at every decision.”
It comes after Shell revealed it received a tax rebate from the government despite making profits of $30 billion so far this year.
Another key area to listen out for is National Insurance contributions [NICs]. When he was chancellor, Sunak brought in a 1.24 percentage point increase in NICs for what was called the “social care levy”.
The money was due to go to the NHS to help clear the covid backlog before being ploughed into social care to solve the sector’s ongoing crisis.
However, Truss and Kwarteng announced that the increase would be reversed on November 6.
Hunt could be tempted to look again at the policy. He could, for example, scale it back so that the cut only applies to basic rate taxpayers.