Jeremy Hunt downplays hopes of tax cuts in November Autumn Statement, citing high inflation and spiralling debt interest costs as constraints.
The Chancellor cautions that reducing taxes could worsen inflation by increasing people’s spending power when price rises have been unexpected. In an interview with Bloomberg TV, he states, “We must be careful not to inject additional funds into the economy, into people’s pockets, as this would inflate prices.”
Hunt acknowledges that inflation and rising rates have exerted additional pressure on the government’s finances. He mentions, “We’ve witnessed inflation exceeding forecasts [from the spring budget], causing higher debt interest payments.”
The government’s interest bill to service the £2.6 trillion national debt reached £37.8bn in just the first four months of this financial year, further straining the public purse.
Economists surveyed by the Treasury predict that the Chancellor will borrow approximately £132bn this year and nearly £100bn next financial year.
Contrary to tax cuts, the Chancellor warns that spending pressures may necessitate increased burdens on businesses and households. He asserts, “If we don’t change course, taxes are bound to rise.”
The tax burden is already historically high and set to increase. The Office for Budget Responsibility forecasts that the tax take will rise to 37.7% of GDP by 2027-28, the highest proportion since World War II.
Hunt lays out potential strategies to change course. He emphasizes the need to facilitate businesses in recruiting workers to avoid salary increases and higher prices. Additionally, he mentions the importance of controlling inflation and boosting business investment.
The government aims to halve inflation this year to around 5%. Inflation has already decreased from 10.5% in January to 6.8% in July. Data expected to be released next week is likely to indicate that the pace of price increases accelerated again in August due to higher petrol prices.
Persistent inflation has compelled the Bank of England to raise interest rates 14 consecutive times, reaching 5.25%, in an effort to bring prices back to the 2% target.
Catherine Mann, a member of the Bank’s Monetary Policy Committee, warns that further rate increases are necessary to fully eliminate inflation from the economy. She states, “Maintaining rates at the current level risks allowing inflation to persist.”
Hunt makes his comments while visiting India for economic relations talks with Britain, expressing hope for a free trade agreement to be reached as early as this year. He states, “I think it depends on what happens in the next few weeks. I sense real political momentum.”
Meanwhile, Lord Hague of Richmond cautions that the annual cost of funding triple-locked state pensions is “unsustainable” in the long term. The former Conservative Party leader explains that “steadily higher taxes” will be necessary to support healthcare spending for the increasingly elderly population.
The current form of the triple lock pension could potentially increase state spending by up to £45bn per year by 2050, according to the Institute for Fiscal Studies. This guarantee ensures that the state pension increases each April based on the highest of September’s inflation rate, wage growth, or a baseline of 2.5%.
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