The Chancellor, Jeremy Hunt, will deliver the Autumn Statement on 17 November and is expected to set out tax rises and spending cuts in an attempt to reassure the markets in the wake of the Trussonomics disaster. It is anticipated the Chancellor will announce tax rises worth £20bn and spending cuts of £35bn.
How might the Labour Party respond? The Conservatives link Britain’s economic woes with a global picture in which the Russia-Ukraine war is putting pressure on energy prices and pushing up inflation, which hit 11.1 per cent, another 40-year high, on 16 November.
With the Bank of England predicting inflation will begin to fall next year, following interest rate hikes and government intervention on energy bills, making a drop in inflation the test of the Budget is ground Hunt will feel comfortable on.
The shadow chancellor, Rachel Reeves, signalled during Treasury questions in the Commons on 15 November that she will castigate Hunt over the fall in real wages. The Office for National Statistics has confirmed that pay rises are being outstripped by prices, with average earnings down 3.8 per cent when Consumer Price Index rates are factored in.
Hunt is expected to freeze a number of tax thresholds until 2028, rather than increasing them in line with inflation, meaning more people will fall into higher brackets.
[See also: What to expect from tomorrow’s Autumn Statement]
Britain is suffering the worst cost-of-living crisis in the G7 and underlining as much helps Labour prosecute its central argument on the economy: that the government has failed to stimulate economic growth and the UK is more exposed to shocks as a result.
It is an easier case to make if the Chancellor chooses to slash capital spending on infrastructure aimed at boosting growth long-term.
Hunt, however, may be tempted to delay some cuts until after the next election. The opposition might be happy with such a political manoeuvre as it allows them to claim the government fears it has already lost the next election. But it would nonetheless put pressure on Labour in the months ahead to outline how they would balance the books.
One example of this is social care. Rishi Sunak may shelve Boris Johnson‘s care costs cap for two years, for example, while Hunt is reportedly poised to let town halls raise council tax by almost 5 per cent without a referendum. Local authorities are already struggling financially and such a hike would be insufficient when it comes to paying for social care. Making social care a live issue would lead to questions being asked of both government and opposition.
Reeves agreed on Sunday there is “clearly a gap” in the nation’s finances. The party’s fiscal rules pledge that a Labour government would not borrow to fund day-to-day spending. Reeves seems more likely to banish Harriet Harman to Jupiter than she is to change those rules.
Policies Labour has announced so far, such as abolishing the non-dom status and ending tax perks for private schools, show intent but would not close the gap. Ultimately Labour may conclude, at this moment of peak Tory chaos, that the most damaging thing the party can do to its opponent at the moment is to keep its cards close to its chest.
[See also: Escaping the austerity trap]
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