Millions of UK households will pay more for their power from next April as part of plans to cut the generosity of the government’s gas and electricity subsidy scheme, which is expected to be announced by Jeremy Hunt on Thursday.
The chancellor is likely to use his autumn statement to say that the need to save money and reduce government borrowing will require raising the ceiling on household energy prices from £2,500 to £3,000 to £3,100.
Hunt will also announce unexpectedly higher taxes on oil, gas and electric companies that saw their profits soar after Russia’s invasion of Ukraine in February, sending global energy prices soaring.
Despite the fragile state of the economy, the chancellor will say he needs to suck up to £60 billion from the economy through tax increases and spending cuts to help the Bank of England put pressure on inflation.
It is expected to lower the threshold at which people start paying the top 45p rate of income tax from £150,000 to £125,000, in a fundamental change of direction from the later abandoned move to scrap the rate under the Liz Truss government.
There are expected to be increases in capital gains tax and dividend tax, while a freeze on personal tax thresholds for a further two years from 2025-26 is also likely. Council tax could also be increased, as the rule shortening councils could be raised to 3% unless They have a referendum that can be raised to 5%.
The latest official cost of living figures showed that the annual rate of inflation jumped to a 41-year high of 11.1% last month, due in large part to a 90% increase in local energy bills.
The Office for National Statistics said that without the government support scheme the annual rate would have been close to 14%.
Hunt and the prime minister, Rishi Sunak, have insisted tackling the cost-of-living crisis is their top priority, even though senior labor figures and many economists believe inflation has now peaked and will ease next year. Many of the measures are expected to take effect in 2024 or later, when the Treasury Department believes the economy will be better able to withstand the pressure.
Sunak was initially hostile to Labor’s demand for a windfall tax when he was minister, but eventually bowed to pressure to introduce a tax in May. Hunt will impose a stricter tax on a broader group of energy companies.
Oil and gas companies will see a windfall profit tax increase from 25% to 35%, extended for another two years to 2028.
Companies that generate electricity from old wind and solar farms, as well as old nuclear plants, are likely to face an excess profit tax of 40% to 45%.
“The whole approach is to lower inflation,” a government source said, with Hunt warning that persistently high inflation is causing industrial disruptions, rising food and fuel costs, business failures and job losses.
“If we go into recession it will be driven by inflation and today it is 11.1%. This hampers any possibility of economic growth. Until we get inflation under control, we will not be able to achieve long-term sustainable growth. Borrowing for tax cuts would have added fuel to the fire.” He added. The source is that we are developing a plan to reduce debt in the medium term and achieve balance in the books.
Speaking ahead of the fall statement, Hunt said his priority will be seeing those with the broadest shoulders bear the heaviest burden, promising to be “honest about the challenges and fair in our solutions.” Amid the cost-of-living crisis, Hunt is expected to protect the triple lock on pensions, raising benefits in line with inflation. There will also be additional support in the energy bill for vulnerable people such as retirees and those receiving benefits.
But he will warn that stability “depends on making tough decisions now”. The statement is likely to set cuts in public spending by around £25 billion to £30 billion, including cuts in capital spending such as savings in key infrastructure spending such as high-speed rail. But the NHS is expected to get an increase in its budget, with trust leaders asking for extra funding to catch up with inflation, by around £7 billion.
“We’re making tough decisions to deliver strong public financing and help keep mortgage rates low, but our plan also protects our long-term economic growth,” Hunt said ahead of the statement. At the same time, we protect the weak, because to be British is to be merciful.
There is a global energy crisis, a global inflation crisis, and a global economic crisis. But the British people are tough, creative and resourceful. We have risen to greater challenges than ever before.
“We are not immune to these global headwinds, but with this plan for stability, growth, and public services, we will weather the storm.”
Hunt will attempt to portray the UK’s economic difficulties as a global problem, glossing over the disastrous mini-budget of his predecessor, Kwasi Quarting, and former prime minister, Liz Truss, which caused market turmoil, raising interest rates and government borrowing costs. Unlike the Kwarteng package, the fall statement will be accompanied by a full analysis by the independent Office for Budget Responsibility.
The Balance Sheet Office will cut its forecast for UK growth, but will say Hunt’s measures should be enough for the government to meet its self-imposed rules of having debt as a share of national income on a downward trajectory within five years.
Former business secretary Jacob Rees-Mogg told ITV’s Beeston Wednesday night that he would vote for the budget so as not to bring down the government, but warned that he opposes tax cuts that he believes “risk making the recession worse.”
Simon Clarke, then serving as secretary under Truss, warned Hunt not to “throw the baby in the bathwater and overcorrect him” by forcing too many tax hikes. Asked if he would vote for the Autumn Manifesto, he told BBC Radio 4’s programme: “We’ll have to see what the package is but I always do my best to support the government and I very much hope I do.”
But former chancellor Lord Clarke said Hunt should press on: “There are some unruly right-wingers and populists in the House of Commons at the moment, but most of them are not quite angry enough to push the government into an election at the moment.”
Labour’s shadow chancellor, Rachel Reeves, said the UK was “being held back by 12 years of Tory economic failure and squandered opportunity”.
“Britain has a lot of potential, but we are falling behind on the world stage while mortgage, food and energy prices are rising,” she said.
“What Britain needs in the Autumn Manifesto is fairer choices for workers and a proper plan for growth.”