Hunt’s big squeeze begins…

Britain faces the highest tax burden since the Second World War, just as we head into recession and the worst crash in living standards for decades.

Make no mistake, all workers will have to pay higher “stealth” taxes because of Jeremy Hunt’s decision in today’s brutal Autumn Statement to freeze personal allowances, basic and higher thresholds, until 2028. What’s more, it’s the middle-income earners and families with young children and big mortgages who are going to be clobbered the most. By 2028, someone earning £50,000 will be paying £1,893 more in tax.

Higher earners are also being hit, with the top rate of 45p coming down from £150,000 to £125,000, taking another 250,000 high-earners into the top rate for the first time. (The marginal rate of tax between £100,000 and £125,000 is already 60 per cent).

On top of this squeeze on incomes, councils are going to be allowed to put up local taxes by 5 per cent, fuel duty is to be increased by a horrendous 12p a litre next spring, electric cars are to be taxed while energy bills are to be capped at £3,000 rather than the £2,500 announced by Liz Truss.

The one-off windfall taxes on oil and gas companies have turned into a hurricane. They will now be taxed at 35 per cent until 2028, which means firms will face a 65 per cent to 75 per cent charge on profits from UK operations.

By far the most damaging impact of the Chancellor’s tax raid will fall on the country’s six million SMEs which provide more than two-thirds of all jobs. Talk about squeezing the pips until they squeak: SMEs will be screeching as they face the higher 25 per cent corporation tax, and higher taxes on dividends and salaries. At the same time, R&D tax credits have been slashed while the £12,300 tax-free allowance for capital gains tax is to be halved to around £6,000 and then halved again the year after next. 

The Chancellor’s impersonation of Scrooge morphed into Santa when it came to pensioners and those on welfare benefits. From April, pensions and benefits will rise in line with September’s 10.1 per cent inflation figure with top-ups for the most vulnerable. The National Living Wage is also being increased. 

On top of the £54bn of tax hikes come £30bn worth of cuts to public spending. Hunt’s decision to hire ex-Labour minister Patricia Hewitt to review NHS efficiency and Tony Blair’s delivery chief, Michael Barber, for skills agenda to achieve “Scandinavian quality, Singapore efficiency” in public services was a clever ruse. Rather lets him off the hook.

What is staggering is that Rishi Sunak and Hunt have not ditched the £100bn-plus HS2 rail project or extended the Net Zero target date to help balance the books. 

As you might expect, Labour had a field day with its traditional response. Shadow Chancellor – and probably the next one – Rachel Reeves could for once claim with impunity that 12 years of Tory rule have led to economic failure. “Never again can the Conservatives claim to be the party of economic competence,” she said. Quite.

Ironically, the greater opposition to Hunt’s budget might well come from a group of his own backbenchers, led by Esther McVey, who are considering rebelling against his punitive masterplan. 

But the bigger question is whether Scrooge has succeeded in his ambition. He had two challenges: restore credibility to the UK’s public finances (see Doug McWilliams, below) and calm the markets while also pulling the levers for growth. He scraped by on the former with the pound holding steady while the FTSE indices were little changed. 

The jury is out on the second; new figures out today show business investment is falling like a stone with the UK dropping down the OECD rankings in terms of tax competitiveness as well as productivity. Getting that restored is Sunak and Hunt’s next challenge.