2022 Autumn Statement – H/Advisors Cicero Overview

Jeremy Hunt made much of the difficult decisions he faced in his first proper fiscal event as Chancellor of the Exchequer. Tax rises and spending cuts in equal proportion would, he argued, provide fairness. This is, in reality, an arbitrary choice that seeks to politically balance the calls from those that would prefer spending cuts and those that would prefer tax rises. There is no denying the overriding aim the Government today was to consolidates its fiscal position and reassure markets after the fallout from the previous Chancellor’s disastrous “mini-Budget” mere months ago.

Hunt may not have been Rishi Sunak’s personal choice for Chancellor however the tone struck between the two in recent days suggests that they have taken to heart that the Conservative Party needs to ‘unite or die’. That unity has to last across a supremely economically difficult period if it is to reap any political windfalls. Real household disposable income per person is set to fall 4.3% this year, and 2.3% the year after as inflation remains stubbornly above target. Unemployment is due to increase from 3.6% to 4.9% in 2024. Interest rates will likely continue to rise while the Bank of England seeks to reduce the inflation rate. In the meantime, the Conservatives will say that their policies are seeking to strike a balance between maintenance of public services, while not raising taxes to the point that it chokes off economic growth required to pay for them.

The political choice to introduce two new fiscal rules, that within five years debt has to fall as a proportion of GDP and public sector borrowing must be below 3% of GDP, shows a Chancellor that has his eyes both on restoration of national economic credibility in international capital markets but also political credibility in the eyes of an electorate burned by the short and tumultuous Truss premiership. They also represent an attempt to corner the Labour Party, following their economic playbook and challenging them not to make policy pledges that expand the size of state spending. This trap is extended further by government pledges to support capital projects such as the building of Sizewell C nuclear power station, continuation
of HS2, and Northern Powerhouse Rail, as well as with R&D funding increasing while at the same time keeping development spending below the 0.7%. Taken together these could force the opposition into a debate on spending framed in Tory terms.

Tory backbenchers were muted throughout the Statement, and sombre in hearing the figures showing the real hardship that families and businesses up and down the country will face in the months ahead. There were a few exceptions though, throwing their weight behind the extra spending on the Health and Social Care budget, in education, in the maintenance of capital expenditure, and in continuing the pensions triple lock. Hunt and Sunak’s prioritisation of protection for pensioner budgets and projects in the Red Wall should be seen as a clear attempt to stymie the bleed of votes that has happened in recent months and shore up the same coalition that voted for the party in 2019 ahead of the next election.

Ahead of that election the blame game for the pain the country is feeling at present is well and truly under way. Hunt began his statement by blaming unprecedented global headwinds, before labelling the economic downturn a “recession made in Russia,” and citing the Office of Budget Responsibility as confirming that “global factors” are the “primary cause of current inflation.” The Labour Party’s response was that the problem was “made in Downing Street.”

Who voters blame for the decrease in their purchasing power and the diminished opportunities in their lives will ultimately decide the next election. Hunt and Sunak are looking to reap the benefits of prudence now and signs of growth later and hope to do so off the back of rebuilt economic credibility. “Britain is on the right track, don’t turn back” might well be something older political afficionados will recognise. The Labour Party, on the other hand, have already started to repeat the message: don’t forgive, don’t forget.

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