Yesterday’s report by the Office for Budget Responsibility predicted Hunt would raise tax on petrol and diesel by 23% in March. This will more than reverse Rishi Sunak’s temporary 5p/litre cut earlier this year and bring in £5.7 billion in extra tax revenue next year. But Hunt told broadcasters this morning that no decision had been made, saying: Let me be clear, this is not government policy. We will make a decision on this in the next budget in the spring. This was just an assumption made by the OBR – they are an independent organisation, they make assumptions. We haven’t made any decision on that at all. Important events BETA filters Key Facts (14) Jeremy Hunt (15) United Kingdom (11) IFS (6) Paul Johnson (4) OBR (3) The IFS has condemned the government’s decision to delay the introduction of a cap on social care costs for another two years. Paul Johnson fears this could sink the plans: Firstly, it is appalling that the welfare reforms will now not be implemented next year as planned. I rather fear that another two-year delay is tantamount to death for these vital changes. The government should not make and then renege on promises like this that mean so much to vulnerable people. Sir Andrew Dilnot, the economist behind the plan, said yesterday he was “surprised, confused and deeply disappointed” at the delay until October 2025. The IFS says Hunt’s statement was progressive – but almost everyone will be poorer. [email protected]: “Add up all the tax and welfare changes and this was a progressive fiscal statement – tax increases on the rich and increased targeting of the poor.” “It’s just that almost all of us can expect to be worse off.” — Institute for Fiscal Studies (@TheIFS) November 18, 2022 Yesterday, the Treasury published a distributional analysis of the measures in the Autumn Statement which showed that the measures were reasonably fair. The poorest households gain the most, proportionally and in cash, while everyone else loses – but about the same amount, as a percentage of household income (see yesterday’s liveblog for details). Updated at 10:47 GMT The head of the IFS, Paul Johnson, adds that the UK is reaping the costs of a long-term failure to grow the economy, the effects of an aging population and the high levels of debt of the past. After years of stagnation, household incomes are set to fall and then recover only gradually, while taxes rise and public services continue to struggle. The truth is that we have become much poorer. We are on a long, hard, unpleasant journey. a journey made more arduous by a series of economic own goals. Mr Hunt seems to have recognized this. After years of cake, his colleagues, the opposition and we the voters must take this fact into account as well.
IFS: Hunt delays ‘properly tough’ budget decisions
The Institute for Fiscal Studies now presents its assessment of the autumn statement. IFS director Paul Johnson outlines how Jeremy Hunt appears to have delayed the “properly tough” decisions needed to balance the public finances. The chancellor may be hoping that an economic recovery will reduce the need for a painful squeeze. Or, possibly, a general election could mean Labor faces the difficult task of restoring the nation’s finances. As Johnson puts it: “Blocked by rising interest payments and poor growth prospects, the chancellor has decided to allow borrowing to rise and put off properly tough decisions for another two years.” “He can hope that things will be better by then, or maybe that it will be someone else’s problem.” [email protected]: “Instead of implementing a painful package of spending cuts that could prove unnecessary, he’s hoping good news will come and that these spending cuts aren’t needed after all.” “But remember, uncertainty runs both ways.” — Institute for Fiscal Studies (@TheIFS) November 18, 2022 The London stock market also rose this morning, along with the pound. The blue-chip FTSE 100 gained 50 points, or 0.7%, to 7,398, with the smaller (more UK-focused) FTSE 250 also up 0.5%. But even so, the short-term outlook for investors “remains bleak,” says Ed Caswell, chief investment officer at MHA Caves Wealth. “The UK faces a triple threat for investors in 2023 with recession shrinking the economy by 1.4%, unemployment reaching 4.9% and inflation remaining at 7%. Furthermore, with corporation tax hitting 25% and tax-free capital gains/dividends halving in both 2023 and 2024, global investors have no reason to reconsider their UK investment case next year . “Still reeling from the (not so) mini-budget 8 weeks ago, a muted market response to an announcement of yesterday’s magnitude will no doubt be seen as something of a success by the government as their £55bn fiscal consolidation seeks restore credibility and return long-term prosperity. However, for domestic and domestic investors, the picture remains bleak.” European markets are also moving upwards this morning:
Pound rallies despite growing gloom
Sterling is recovering from some small losses yesterday, despite clouds of gloom over the economy. The pound is up three-quarters of a minute this morning at $1.193, while the euro is also up half a minute at €1.15. This chart shows how the pound is near a three-month high, having hit a record low of around $1.03 after the mini-budget mess. The pound against the US dollar Photo: Refinitiv But… Ipek Ozkardeskaya, senior analyst at Swissquote Bank, warns that the outlook for the pound remains bearish: From economic lenses, both the reversal in spending cuts and higher energy bills will boost inflation and this could be negative for the pound if the Bank of England does not counter with higher interest rate hikes. And the BoE last said it would not go crazy to avoid a full-blown UK financial meltdown. And indeed, what was really scary for sterling traders yesterday was the gloomy growth forecast. Jeremy Hunt said the UK is already in recession – stating the obvious. But he also said growth would slow to 1.4% next year, against a previously printed 1.8% expansion, and the recession would last more than a year, with the BoE likely to raise rates to fight inflation during this period.
Hunt: No decision on fuel duty hike
Jeremy Hunt has insisted he has not decided to increase fuel duty by 12p a liter next year. Yesterday’s report by the Office for Budget Responsibility predicted Hunt would raise tax on petrol and diesel by 23% in March. This will more than reverse Rishi Sunak’s temporary 5p/litre cut earlier this year and bring in £5.7 billion in extra tax revenue next year. But Hunt told broadcasters this morning that no decision had been made, saying: Let me be clear, this is not government policy. We will make a decision on this in the next budget in the spring. This was just an assumption made by the OBR – they are an independent organisation, they make assumptions. We haven’t made any decision on that at all. Online shopping deliveries in the run-up to Christmas could be disrupted by the latest Royal Mail strike. Postal workers will hold six more days of strike action in December, including Christmas Eve, as part of the latest service-impacting walkouts in a row over pay and conditions. Communications Workers Union (CWU) members at the service will strike on December 9, 11, 14, 15, 23 and 24. Four more strike days are already planned, including Black Friday next week. Victoria Scholar, chief investment officer at interactive investor, says tensions between the two sides are escalating again. Just yesterday, International Distribution Services said talks would stop if further strikes went ahead, suggesting workers are taking a more aggressive approach, perhaps after their intensive talks failed to progress. Royal Mail and its workers appear to be at an impasse over pay and conditions, with workers frustrated by the cost of living crisis as wages fail to keep up with inflation. Royal Mail’s parent company IDS recently announced 10,000 job cuts last month. Yesterday it posted a loss of £219m for the first half of the financial year and asked the government to let it stop delivering letters on Saturdays. The scholar points out that the strike will worsen his financial situation: The additional recovery days cause additional chaos and financial pain for the business, potentially leading to an even larger full-year loss than anticipated.
Retail sales: what the experts say
The UK retail sector faces a bleak outlook, despite a small increase in demand in October, experts warn. Jacqui Baker, head of retail at audit, tax and advisory firm RSM UK, predicts next week’s Black Friday sales could be disappointing for retailers hoping to turn over stock. “Although there was an uptick in retail sales last month, with clothing up 2.5%, it is hard to ignore what is likely to be a bleak winter ahead. Consumers are considering how they can deal with the impact of the cost of living crisis on their spending decisions. Even basic food spending fell by 1%, with shopping baskets getting smaller as inflation takes hold. “Despite the cost of living allowance given to consumers last month to offset the rise in the energy cap, there is still little sign of early Christmas cheer for retailers. This has led to many not being able to hold their nerve and start bidding early. Spending has been hit by the mini-budget turmoil, which spooked consumers, and rising inflation, says Paul Donovan, chief economist at UBS Global Wealth Management. UK retail sales were weak in October. The market crash following the Truss government’s budget plans has created…
