The nature of this Autumn Statement was never really in doubt. The Chancellor, the Prime Minister and other government figures had spent much of the past two weeks making overly optimistic noises about the health of the economy and briefing freely on the nature of the tax cuts that might be expected.
This included an unusual prelude on Monday when Sunak himself gave a speech claiming that now ‘he’ had halved inflation ‘the time has come to cut taxes’. It didn’t seem to matter that inflation has fallen largely as a result of global energy prices, that monetary policy remains firmly in the hands of the Bank of England or even that in stark contrast to having ‘achieved the target’ prices are still rising at more than twice the 2% rate set by the Treasury to be delivered by the Bank’s Monetary Policy Committee (and which the Chancellor forecast would not be hit before 2025). This means that while interest rates might now have peaked, they are likely to remain at these levels for some time and the new global economy means they are unlikely to return to the ultra-low levels experienced for over a decade since the financial crisis.
When Jeremy Hunt became Chancellor last year it was to re-establish stability at the end of Liz Truss’s short and disastrous premiership. He became the dominant figure in government, talking hard realities and reversing the calamitous unfunded tax cuts of his predecessor. His was the voice of reason amid a cacophony of populism. He was soon, though perhaps briefly, joined in this approach by the new Prime Minister who promised competence and managerialism. But while Hunt has largely held the line over the past year, Sunak has been much more unnerved by a combination of truly terrible poll ratings and pressure from his own right wing who never wanted him in Number 10. It is the reason why the PM has drifted, not entirely successfully, into the sort of culture war politics associated with Boris Johnson and talks about long-term decisions despite the blindingly obvious fact that a general election is on the horizon that will in all likelihood eject him and his party from office.
So the choice was responsible competence or popularism. This Autumn Statement represented a tussle between these two forces and neither side won. But neither entirely lost either.
Responsible Hunt announced 110 modest but targeted interventions investing in skills, freeing up planning, liberalising pension fund rules (an interesting one), additional cash for apprenticeships, investment in net zero and green industries and AI, new R&D tax relief, new investment zones, regeneration, abolishing Class 2 NI for the self-employed, and more…
But populist Hunt made an appearance too. Predictably, the pensions triple lock was maintained boosting state pensions by 8.5%. A clampdown on Benefits for the unemployed not taking up jobs was thrown out as red meat to the back benches. But then the finale. Billed as ‘the biggest business tax cut in modern British history’ a two percentage point cut in employee National Insurance became the centrepiece of the Statement.
Tax cuts are what the right of his party wanted but given that they were trailed so heavily in the run up to the Chancellor’s statement, there is a political risk that they will be ‘banked ‘by supporters who would have wanted to go further. Much further.
The other problem for the Chancellor in delivering the Tory right’s holy grail of slashing taxes is that not only are they potentially inflationary (though he was at pains to emphasise that his overall package is not) but that there is so little scope for systematically bringing them down such are spending commitments, debt levels and growth rates. While Hunt was jubilant that Britain has avoided a technical recession and there was a little ‘headroom’ in this round, GDP is stagnant. And while the UK is far from alone in experiencing challenging economic conditions, the hard truth is that growth has been completely anaemic since that financial crisis — a lost decade if you like.
The irony too of the Chancellor’s so-called ‘long term decisions’ is that not only are these measures largely designed for short term political headlines ahead of an election year, but also that it is likely to create a fiscal headache for Hunt’s successor when it comes to balancing the books post-election.
Responsible Hunt then has delivered the sort of measures a Chancellor might eye at the beginning of a Parliament. But populist Hunt recognised the political pressure from his own right wing and the time ticking away until reckoning at the polls.