Media caption, Jeremy Hunt says he wants to make sure any recession is short and shallow
By Nick Eardley & Helen Catt & Leila Nathoo
BBC political correspondents
The chancellor is poised to deliver the government’s second financial package in under two months.
Jeremy Hunt is expected to dismantle much of what his predecessor Kwasi Kwarteng announced in his mini-budget on 23 September.
On Thursday, Mr Hunt will unveil his autumn statement – a budget in all but name – to “get our way back to growing healthily”, as he puts it.
The Treasury say nothing is confirmed until the statement is announced. But BBC political correspondents have been speaking to those involved in the process to figure out what’s going to be announced.
Spending cuts v tax rises
After the uncertainty of the last few weeks, Mr Hunt said he wants to reduce the size of the so-called fiscal black hole – the gap between what the government raises and spends. This will involve political choices about how much debt is acceptable, what taxes can go up and what spending can be squeezed.
The accepted wisdom in the Treasury is that there will be more spending cuts than tax rises. This is likely to equate to around £30bn in spending cuts and £24bn in tax rises.
The Treasury is trying to emphasise this is quite different from the George Osborne era, when the vast majority of savings came through spending cuts.
But a number of Conservative MPs are unhappy at the tax increases we are likely to see – so there could be some political pushback ahead.
Stealth taxes involve freezing the thresholds at which people start paying different rates of tax.
As a result of inflation and pay increases, people will end up paying more tax.
The signs are that this could be used pretty widely. Income tax bands are likely to be frozen until 2028. The additional rate of tax will be paid from £125,000 – down from 150,000.
That’s quite a turnaround from the days of Liz Truss and Mr Kwarteng, who wanted to scrap the additional rate altogether.
Ms Truss had planned a massive support package when she was in Downing Street; limiting the average unit price for two years. This “energy price guarantee” meant that typical households would pay no more than £2,500 on gas and electricity annually.
The Treasury is likely to say an energy price guarantee will remain in place – but rise from £2,500 to £3,000. That means millions of households will see their bills go up by hundreds of pounds from April.
Without this intervention, bills would have hit £4,000. Allowing the cap to rise will help fund targeted support for some eight million low income households.
Mr Sunak introduced the windfall tax on the profits of oil and gas companies when he was chancellor. But ever since, there have been calls for it to be extended, both in timescale and scope.
This is another revenue raiser which looks likely, the question is how. Treasury officials have been exploring increasing the rate of the tax to 35%, extending the time frame the windfall tax applies for and bringing electricity generators into the scope.
Labour wants loopholes closed. At the moment, if oil and gas companies can offset their tax liability if they invest profits in the UK. There was controversy when it emerged Shell had not been liable for any Windfall Tax, despite reported profits of £25.4bn ($30bn) this year – more than double the amount it made over same period in 2021.
Image source, Getty Images
Remember the health and social care levy? It was Boris Johnson’s plan to try and cap the amount of money people in England paid for social care.
But it was a tax rise that Conservative members didn’t like – and Ms Truss scrapped it. Mr Sunak isn’t going to open that can of worms again, so the money it would have raised has gone, leaving big questions over how a cap would be funded.
It is expected that on Thursday, the chancellor will postpone the introduction of the social care cap for at least two years – roughly the period covered by the spending review. That would kick the decision until after a general election and opens the door to the cap being scrapped altogether.
Triple lock and benefits
This is one of the biggest spending decisions the Treasury has been weighing up. Should pensions and benefits go up by the rate of inflation, despite the rate being extremely high at the moment?
Nobody in government will confirm this, but the mood music is both are likely to happen.
The government committed to the pensions triple lock in its manifesto, something which the prime minister has talked a lot about. The triple lock is popular with Conservative voters. And if the prime minister decided not to follow it, he would risk a rebellion among Tory MPs.
The same is true on benefits. Ms Truss faced a lot of pressure to commit to uprating benefits in line with inflation. Among those pressing her were some senior MPs who are now in Mr Sunak’s cabinet, including Michael Gove and Mel Stride.
And it was Mr Sunak as chancellor who promised earlier this year the benefits increase would be in line with inflation. He would face a lot of political flack if he changed his mind, despite the changing economic picture.
One of the taxes which is likely to go up soon is council tax in England.
The government currently limits the amount councils can increase the tax to 3% without a referendum to approve bigger hikes.
But the Treasury has been discussing ways that limit could be increased. It wouldn’t mean councils can put tax up by as much as they want without asking voters, but it would mean they can increase it by more. We don’t know exactly how much the increase will be, but there has been speculation the limit could go up to 5%.
This is a way of increasing funding for public services and social care without the government directly raising taxes. But it would increase pressure on household budgets. The Tory manifesto in 2019 said local people would continue to have the final say on council tax, being able to veto “excessive rises”.
Capital Gains Tax
When it comes to tax rises, we’re told the chancellor is of the view that the greatest burden should fall on those with the broadest shoulders.
We’ll have to see how that pans out but capital gains tax is one levy that looks very likely to be targeted. The tax is paid on the profit gained when an asset is sold – a second home or shares, for instance.
It is not clear yet if it would be an overall rise in the rate – something one source believed to be unlikely – or another change to thresholds or exemptions.
The government is expected to confirm that there will be support payments to help some groups with the cost of living.
It’s expected this will be focussed on people on low incomes, vulnerable groups and pensioners. This will be separate to universal measures to tackle energy bills.
An increased national living wage, from the current level of £9.50 an hour for over-23s, will also be confirmed.