Deep cuts and tax rises ‘will affect everyone’
Steep tax rises will affect every worker and household alongside deep spending cuts as the Prime Minister and Chancellor see no alternative to a lengthy period of austerity.
Rishi Sunak and Jeremy Hunt have been locked in talks with Treasury officials over how to plug black hole in the public finances likely to be between £50 billion and £80bn.
Mr Sunak and Mr Hunt agree that it is “inevitable” that all taxpayers will face a higher burden in the coming years.
The lean period is a consequence of the billions poured into rescue packages to keep the economy afloat during the pandemic and the cost of soaring energy bills.
The measures likely to be announced in the 17 November Budget contrast will focus on “stealth” measures such as freezing tax thresholds – with ‘fiscal drag’ possibly pulling people into higher tax brackets due to inflation – and unlocking the freeze on alcohol duties. Decisions made on national insurance and corporation tax will not be reversed.
A further windfall tax on the energy companies now looks increasingly likely, given that a number of executives in the oil industry believe it would be appropriate. However, earlier attempts have failed to raise the desired sums because some of the oil companies do not make profits in the UK.
VAT changes or increases in income tax rates are thought to be off the table for fear of breaking more manifesto commitments.
But the overall package will be in stark contrast to the tax cutting policies of Liz Truss announced just a few weeks ago, which were quickly seen as reckless and caused the markets to panic.
While former Chancellor George Osborne focused mainly on spending cuts to achieve his targets, it is thought Mr Hunt is likely to seek an even balance between cuts and tax rises.
The biggest challenge will be selling real-term pay cuts to public sector workers who have already staged a series of strikes and are threatening to leave their jobs for better salaries in the private sector.
The Bank of England meets this Thursday amid expectations that it will raise interest rates by 75 basis points, thereby Increasing cost pressures on households and businesses.
Governor Andrew Bailey had described the previous date for the fiscal plan – 31 October – as the ‘correct sequence’ so that his committee would not be voting blind.
Because of the change of date, the Bank’s monetary policy committee, which determines interest rates, will not have the benefit of the Office for Budget Responsibility’s assessment of what is being planned in what is now a full-blown Budget.