Kwasi Kwarteng announced his so-called mini-budget, which caused widespread panic and uncertainty towards the government. The plans provoked markets and caused the pound to drop to the lowest it has ever been. After a considerable backlash, Kwarteng and Truss backtracked on their plans, restoring some calm; the public still did not hold much faith in how their leaders proposed to carry out all their goals. This led to the sacking of Kwasi Kwarteng, who was quickly replaced by Jeremy Hunt. Hunt was under immense pressure to fix Kwarteng's misdoings and did not take long to scrap virtually all of the policies that Truss had proposed.
Not long after this, still facing widespread mistrust and scrutiny, Truss resigned and was replaced by her opposition in the leadership race, Rishi Sunak. Hunt kept his position as Chancellor.
Kwasi Kwarteng had scheduled a "medium-term fiscal plan" for 31st October, which Sunak and Hunt initially chose to honour to reveal a plan to get the country back on track.
This was later delayed in favour of a full Autumn statement, which we saw yesterday morning.
The tricky thing for the government is that, with current market conditions, they can only please some. If they focus on one, they let down and potentially even harm the other. People desperately need help with rising energy bills and living costs, but this is not viable in creating an economically sound and strong country.
One of the issues with the mini-budget, and the previous government in general, is that they proposed significant tax cuts and extra growth investment - but never backed up how they would fund them. This resulted in criticism from many sides as it's all well and good to introduce a "growth plan", but if you fall at the first hurdle of implementation, it's no good to anyone. So, hopefully, the plans that Hunt proposes are backed up and thoroughly thought through.
The Autumn Statement is an annual economic update from the government, and this year was delivered by Chancellor Jeremy Hunt on 17th November.
The Autumn statement tells us exactly how this new government plan to tackle the economic crisis we are currently facing. Both inflation and interest rates are rising, and economic growth is at a low - only looking to drop further over the coming months.
Sunak and Hunt have a big task regarding maintaining public morale and trust in the government. Time will tell if their plans come to fruition; we can only hope it goes better than Kwarteng and Truss's attempt.
Hunt acknowledged the crisis we are in, stating, "Today we respond to an international crisis with British values."
The focus of the Autumn statement was "stability, growth and public services".
Watch the highlights here:
Speculation proposed that substantial spending cuts and tax rises cuts would occur, tens of billions of pounds worth, which Hunt confirmed in the statement.
Hunt has proposed changes to tax thresholds, framing it so that the thresholds will be frozen rather than the tax rates rising. He avoided using the exact phrase "rising taxes", although this could be what it feels like for many.
The Chancellor recognised we need "low taxes and sound money – but sound money has to come first."
However, targeted support is available for those struggling with the cost of living crisis.
Summary of the announcements:
Taxes & Wages
- The threshold for paying the top rate of tax has been reduced to £125,140 - costing around £1,200 a month. Workers previously did not have to pay the top rate until they hit £150,000. This will affect an extra 232,000 people, according to the Treasury.
- Thresholds on income tax, personal allowance, higher-rate tax, national insurance and inheritance will be frozen for a further two years until April 2028.
- For over-23s, the National Living Wage will be increased from £9.50 to £10.42 per hour - from April 2023.
- This year and next, tax-free allowances for capital gains and dividend tax will be cut.
- Benefits and pension payments will rise in line with inflation.
- Rent prices in the social housing sector capped.
This is all part of the government's efforts to ease the cost of living crisis. By raising wages and benefits, they hope to offset some of the increases in everyday expenses. However, many people are still likely to feel the squeeze as rising costs continue to outpace wage growth.
- Overall, tax rises total £24bn
- £30bn worth of spending cuts
TAX: CX pushing thru £24bn tax rises wks after Truss promised biggest tax cuts - £45bn - in 50 yrs. Tax rises for everyone at time of recession & biggest fall in disposable HH incomes in 10 yrs. Sunak unpopular with some Tories for lifting taxes as CX. How will they react now?
— Beth Rigby (@BethRigby) November 17, 2022
Short-Term Funding for Public Services
- £3.3bn for the NHS
- £4.7bn for social care
- £2.3bn for education next year and the year after
Energy Bills
- The energy bill relief scheme will be extended but will reduce in amount.
- Targeted support for those with low incomes, disabilities and pensioners.
The OBR has confirmed that the UK is in a period of recession, which undeniably will make it a tough road ahead for small businesses.
Hunt is confident that his plan will help the UK achieve higher long-term growth and lead us out of recession.
Some support for businesses comes through a £13.6bn package of support on business rates.
Businesses are struggling with prices rising and growing uncertainty.
This is why the government is providing a £13.6bn package of business rates support, to help businesses through these tough times. #AutumnStatement pic.twitter.com/zuxalJ7RgF
— HM Treasury (@hmtreasury) November 17, 2022
There is additional support for SMEs through the R&D tax relief scheme. Unfortunately, due to "concerning reports of abuse and fraud", this scheme has been tightened. The deduction rate will be cut from 130% to 86%, meaning that if your small business engages in research and development and claims money back from the government - you can no longer claim as much.
You can read more about that and how it will affect you here.
On the other hand, R&D expenditure credit (RDEC) has been raised from 13% to 20%.
Small businesses were already struggling significantly amid the cost of living crisis and soaring bills; many small business owners are wondering why the government isn't taking more direct measures to help support them. The response from SMEs has not been largely positive, with many believing that the statement's focus was misplaced.
Martin McTague, Chair of the FSB (Federation of Small Businesses), released a statement in response to Hunt - read it below.
Read our full reaction to the Chancellor's Autumn Statement ⬇️ https://t.co/JSnJ4Zvve8 pic.twitter.com/ySLh6mDbeo
— FSB (@fsb_policy) November 17, 2022
The fact remains that while the Autumn Statement may have provided some short-term relief, it failed to provide a comprehensive plan for tackling the long-term economic crisis ahead. The future of small businesses in the UK is still uncertain, and many are looking for the government to provide more help and guidance.
The fact is, taxes and spending cuts will continue to be necessary if the current economic crisis is resolved sustainably. The government must ensure that these measures are targeted at those who can most afford them, to avoid burdening already struggling businesses.
There is a supposed "black hole" of around £55bn in public finances that the government wants (/needs) to rectify. This is where Hunt's £55bn in spending cuts and rising taxes came from. The government hopes that the black hole will shrink by cutting spending and introducing tax thresholds, and the country will build in strength.
According to the Institute for Fiscal Studies director, we cannot fix this issue without making "big, painful spending cuts".
Try as hard as we can, given plausible forecasts, we can't see how to get public finances on a sustainable path without big, painful spending cuts or a reversal of £43bn tax cuts just announced. Chancellor has a big job to reassure markets his mini budget spooked so badly https://t.co/I9oj3DKLAi
— Paul Johnson (@PJTheEconomist) 11th October, 2022
There has been some debate from both sides of the political spectrum as to whether this black hole exists, but either way, something needs to be done to support the economy.
The issue with this is sorting the problem without making things worse. The way to rectify this gap in public money is to reduce government spending and raise taxes. Neither is proving particularly popular with the public, given that spending is necessary to keep our public services strong, and taxes are already relatively high.
Those who doubt the existence of the fiscal black hole suggest it is an excuse for the government to implement the above, disguised as for the good of everyone in the long run. There may be gaps in public funds, but it results from uncertain forecasts rather than set-in-stone economic facts. And to base a full economic statement on said speculation could be risky.
Households across the UK are already drastically decreasing their spending. If the government joins them in doing so, this could lead to a risky period of stagflation - a combination of high inflation and recession.
Labour has been vocal in its response to the statement, and unsurprisingly, the reaction from the opposition party has not been positive.
The Labour party suggests that the statement could have gone further, with more financial help for those struggling in the aftermath of the pandemic. The government has so far resisted calls for more direct funding, but Labour will be pushing them to change their minds.
Whilst the statement vowed to support those struggling, be that businesses or individuals, several important factors, such as Brexit, were glossed over entirely.
Huge elephant in the room is #Brexit. Hunt didn't once mention how it's contributed to 4% productivity drop, 15% trade drop, 6% food price increase, lower wages, workforce shortages & highest inflation in G7. Why won't Govt call it out? #AutumnStatement@BestForBritain @euromove pic.twitter.com/mAF014TIg7
— Caroline Lucas (@CarolineLucas) November 17, 2022
Additionally, faith in Brexit has reached an all-time low:
The number of Britons who think it was wrong to vote to leave the EU has reached its highest level to date
Right to vote to leave: 32%
Wrong to vote to leave: 56% https://t.co/RkyseAbrEA pic.twitter.com/qPbhkygEl0
— YouGov (@YouGov) 17th November, 2022
Shadow Chancellor, Rachel Reeves, responded to the statement, saying, "The Chancellor should have come here today to ask for forgiveness, at the very least he could have offered an apology."
"This was a crisis made in Downing Street and it is ordinary working people who are paying the price."
She added that these announcements "will cost an average earner more than £600 a year".
"Working families are paying the price for the mess that I'm afraid the Conservatives have now made of the economy"
Labour's Jonathan Ashworth says that "gross abuses" in the tax system have gone unchecked in today's Autumn Statement #bbcqt
Watch https://t.co/nTexh29jgy pic.twitter.com/2Aq0va0Lkw
— BBC Question Time (@bbcquestiontime) 17th November, 2022
The Autumn Statement has sparked debate as to whether the government is doing enough to help those affected by their decisions. Whilst they may have their reasons, such as trying to reduce the fiscal black hole, this could come at the expense of the public purse and hard-working citizens.
It remains to be seen what will happen or what impact the Autumn Statement will have on those struggling financially, but one thing is for sure: it's a closely watched issue.
Whatever the outcome, it is essential that the government does their utmost to ensure no further detriment to people's livelihoods. Only then can we judge whether their statement was successful.
