Delivered on the 17th of November 2022, Jeremy Hunt’s autumn statement aims at increasing NHS and education spending, helping the vulnerable navigate the cost of living crisis this winter, and ultimately rectifying the calamitous mistakes made by former Chancellors of his own party, namely Kwasi Kwarteng.
As it should do, Mr Hunt’s budget offers many positive aspects. Regarding living standards, the chancellor has introduced one off payments for certain groups in the population. It will give £900 to households on means-tested benefits, whilst pensioner households will receive £300, and individuals on disability benefit will get £150. The high level of inflation has subsequently brought a cost of living crisis upon the country, which is a harrowing prospect as we approach a winter where many families won’t be able to heat their homes due to the soaring energy prices. Consequently, these payments give these vulnerable sectors of the population a much needed boost in their income, meaning that they will have more money to spend on (mainly) their own needs, thereby increasing living standards. Moreover, Mr Hunt stated that there will be an additional £1 billion of funding, which will allow an extension for the household support fund. Although the Chancellor was ambiguous about how this £1 billion will be used specifically, we can be sure that it will go once again to the vulnerable, who are worried about their potential inability to heat their homes and therefore stay in good health over the winter. Distressingly, this improvement in living standards isn’t an improvement whereby households will be able to fulfil more of their wants, but rather one where those essential needs, such as food, shelter, and heating, are satisfied. Nonetheless, this is still an improvement in living standards.
The national living wage, more commonly coined the minimum wage, will rise 9.7% next year to £10.42 an hour for over 23’s. This will lead to an increase in real incomes, which have been dropping in recent months as inflation soars to statistically anomalous heights. To add to the cost of living improvements, benefits will increase in accordance to the rate of inflation in September. This means that the increase will be an increase of 10.1%, and will therefore cost the government £11 billion. These two changes, along with the fact that next year the benefit cap will also see an increase, suggest beneficial changes for the living standards of the most vulnerable. Conversely, the living standards of the wealthy have not improved so much – a seemingly ‘unTory’ notion.
Mr Hunt said, “If we want to avoid a doom loop of ever higher taxes, and ever lower dynamism, we need economic growth.” Consequently, he promised a doubling of the spending on the energy efficiency of houses and industries, starting in 2025 – an investment that would involve £6 billion more of government expenditure. Additionally, a new nuclear power station will be built at Sizewell C, which Mr Hunt claims will provide 7% of the UK’s energy needs, a clearly beneficial proposition. He also said that the growth this year will be 4.2% from the Covid-stricken 2021, but the economy will shrink by 1.4% in 2023. Ceteris paribus (with other conditions remaining the same), decreased growth means decreased consumer confidence, which means decreased consumption, causing inflation to decrease. Mr Hunt’s predicted fall in the inflation rate from 9.1% this year to 7.4% next year clarifies this chain of reasoning. Significantly, economic growths of 1.3%, 2.6% and 2.7% is expected to be seen in the economy in 2024, 2025, and 2026 respectively. Using the same assumptions of all other factors remaining constant, increased growth means increased consumer confidence, which means increased consumption, causing inflation to increase. Overall, this suggests short term negative growth, leading to a short term decrease in inflation, and then a longer term growth, leading to a longer term increase inflation. But, the ideal inflation rate is around 2%, there will be a seemingly minimum rate of 7.4%. Assuming constancy in all other conditions, this will only increase as we see positive growth from 2024-2026; will it be low enough to help those vulnerable families attempt to maximise utility, or more realistically, make it through the year with all their needs satisfied?
Borrowing was another point highlighted by the Chancellor. He stated that borrowing in this financial year will make up 7.1% of GDP, almost double March’s predicted value of 3.9% by the OBR. The OBR also has forecasted a budget deficit (when government spending is of a higher value than tax revenue) of £177 billion this year. As the government’s total debt worryingly approaches 100% of GDP in future years, Mr Hunt promised that the tide would turn, with borrowing accounting for a lower percentage of GDP in 2027-2028 than in 2025-2026.
“In this world, nothing can be said to be certain, except death and taxes.” Albeit comically overused, this Benjamin Franklin quote is certainly not false when it comes to the Chancellor’s budget. Concerning business, windfall taxes will increase by £14 billion, meaning that energy companies, such as Shell, retain less profit. Benefitting a projected 700,000 businesses, taxes for business properties will be reduced, with an announced £14 billion cut. In combination, these changes benefit smaller businesses on the whole, whilst mitigating the excess profits of large TNC’s (transnational corporations).
On a personal level, tax changes won’t make the Chancellor popular. Importantly, the tax threshold’s for income tax and national insurance have been frozen for a further two years, meaning that millions across the country will be paying a higher level of tax in the near future. This will increase the governments tax revenue, consequently lessening the budget deficit, which is much needed. Moreover, the income required to pay the top level of tax will be reduced from £150,000, to around £125,000, further augmenting government tax revenue. Politically, this makes Sir Keir Starmer’s task slightly harder, with the Labour leader no longer in a position to criticise the Tories for increasing the wealth gap. Additionally, electric car owners will now have to pay road tax. On the one hand, this yet again boosts government revenues. But, it diminishes the incentive do buy electric cars – a counterintuitive policy from a government that has repeatedly emphasised the country’s need for environmental revolution.
“Our priorities are stability, growth, and public services.” Amidst cheers from his fellow Conservatives and heckles from the opposite side of the Commons, Mr Hunt verbalised these priorities at the start of his speech. With stability hopefully enabled through aforementioned taxes and growth, the only main section of the budget I am yet to cover is spending on public services, namely healthcare and education. Government expenditure will rise in the next few years, with real expenditure (expenditure compared to the rate of inflation) also going up. The school’s budget will also grow by £2.3 billion a year, with the much needed intended benefit of reducing the gap between private and state education.
Moving on to the NHS, Mr Hunt addressed the aging population, by funding the social care system with £2.7 billion over the next two years. Meanwhile, he promised to “increase the NHS budget in each of the next two years by 3.3 billion pounds. […] That is a conservative government putting the NHS first,” concluded the former health secretary.
In terms of unemployment, the rate is predicted to increase, from 3.6% currently to 4.9% in 2024. At the same time, the previously stated increase in minimum wage will mean that those who are employed are seeing a rise in real incomes. The predicted higher unemployment level will mean a lower level of output, along with the fact that not all resources will be fully employed, nor used efficiently. On a PPF (production possibility frontier – the possible quantities of two goods and services that can be produced given the factors of production in an economy) curve, this will be marked further within the concave curve of the graph in 2024 than currently, and shows that the maximum possible output with the current levels of factors of production in the country will not being achieved. The lower output means there will be less supplied onto the market, leading to less consumption, which, ceteris paribus, slows down growth, which in itself is currently desirable in order to slow down the inflation rate. Although the UK is predicted to have positive growth in 2024, the growth that it sees won’t be as large as it has been in previous years, which shows the effect of increased unemployment.
To conclude, I believe that overall, the budget will have a positive impact on the economy. Politically, Mr Hunt’s hand has been forced by the policies of previous chancellors, and unless he wants to further crash the economy and lengthen the recession, it is effectively essential that taxes are increased, even though this isn’t a concept closely associated with the Conservative Party. Overall, his policies are indeed ‘good’, but are simultaneously indubitably necessary. For instance, it is amazing that he has delivered one off payments for those on means-tested benefits, but this was required for those groups of people to make it through this winter with their needs predominantly satisfied.
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