Millions of UK households will pay more for their energy from next April under plans to cut the generosity of the government’s gas and electricity support scheme expected to be announced by Jeremy Hunt on Thursday.
The chancellor is likely to use his autumn statement to say the need to save money and reduce state borrowing will require the household energy price cap to rise from £2,500 to an expected £3,000 to £3,100.
Hunt will also announce higher windfall taxes on oil, gas and electricity firms that have seen their profits rocket after Russia’s invasion of Ukraine in February sent global energy prices soaring.
Despite the fragile state of the economy, the chancellor will say he needs to suck up to £60bn out of the economy through tax increases and spending cuts to help the Bank of England bear down on inflation.
He is expected to lower the threshold at which people start paying the 45p top rate of income tax from £150,000 to £125,000, in a substantial change of direction from the later-abandoned move to abolish the rate under Liz Truss’s government.
There are expected to be increases in capital gains tax and dividend tax, while personal tax thresholds are also likely to be frozen for a further two years from 2025-26. Council tax could also increase, as the rule limiting councils to 3% rises unless they have a referendum could be raised to 5%.
The latest official figures for the cost of living showed the annual inflation rate jumping to a 41-year-high of 11.1% last month, in large part due to a 90% increase in domestic energy bills.
The Office for National Statistics said that without the government’s support scheme the annual rate would have been close to 14%.
More pain to come for vulnerable households despite hopes UK inflation has peakedRead more
Hunt and the prime minister, Rishi Sunak, have both insisted that tackling the cost of living crisis is their top priority, although senior Labour figures and many economists believe inflation has now peaked and will fall back next year. Many of the measures are expected to come into force in 2024 or later, when the Treasury believes the economy will be better able to withstand the squeeze.
Sunak was initially hostile to Labour’s demand for a windfall tax when he was chancellor but eventually bowed to pressure to introduce one in May. Hunt will impose an even stiffer levy on a wider range of energy companies.
Oil and gas companies will see an increase of the windfall tax from 25% to 35%, extended for another two years until 2028.
Companies generating electricity from older wind and solar farms, as well as older nuclear plants, will be likely to face an excess profits tax of about 40% to 45%.
A government source said the “entire approach is to bring down inflation”, with Hunt warning that persistently high inflation causes industrial unrest, expensive food and fuel, businesses failing and job losses.
“If we enter a recession it will be driven by inflation and today it hit 11.1%. That stumps any prospect of economic growth. Until we get to grips with inflation we won’t be able to have long-term sustainable growth. Borrowing for tax cuts would only have added fuel to the fire. We are setting out a plan to get debt falling in the medium term and balance the books,” the source added.
Speaking ahead of the autumn statement, Hunt said his priority would be seeing that those with the broadest shoulders bear the heaviest load, and promised to be “honest about the challenges and fair in our solutions”. Amid a cost of living crisis, Hunt is expected to protect the triple lock on pensions, and uprate benefits in line with inflation. There will also be extra energy bill support for vulnerable people such as pensioners and those on benefits.
skip past newsletter promotion
Sign up to First Edition
Free daily newsletter
Our morning email breaks down the key stories of the day, telling you what’s happening and why it matters
Shareholders reap record payouts from price surge during energy crisisRead more
However, he will warn that stability “depends on taking difficult decisions now”. The statement is likely to outline cuts in public spending of about £25bn to £30bn, including cuts to capital spending such as savings on major infrastructure spending like high-speed rail. But the NHS is expected to get an increase in its budget, with trust leaders having asked for extra funding to keep pace with inflation, of about £7bn.
“We are taking difficult decisions to deliver strong public finances 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 vulnerable, because to be British is to be compassionate.
“There is a global energy crisis, a global inflation crisis and a global economic crisis. But the British people are tough, inventive and resourceful. We have risen to bigger challenges before.
“We aren’t immune to these global headwinds, but with this plan for stability, growth and public services, we will face into 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 Kwarteng, and the former prime minister, Liz Truss, which caused market turmoil, raising interest rates and government borrowing costs. Unlike Kwarteng’s package, the autumn statement will be accompanied by a full analysis by the independent Office for Budget Responsibility.
The OBR will slash its growth forecasts for the UK, but will say Hunt’s measures should be sufficient for the government to meet its self-imposed rule of having debt as a share of national income on a downward path within five years.
Former business secretary Jacob Rees-Mogg told ITV’s Peston on Wednesday night that he would vote for the budget so as to not bring the government down, but warned he opposes tax increases which he believes “risk making a recession worse”.
Simon Clarke, who was levelling up secretary under Truss, warned Hunt not to “throw the baby out with the bathwater and overcorrect” by imposing too many tax hikes. Asked if he would vote for the autumn statement, he told BBC Radio 4’s PM programme: “We have to see what the package is but I always do my best to support the government and I very much hope I can.”
But former chancellor Lord Clarke said Hunt should push ahead: “There are some pretty wild rightwing people and populist people in the House of Commons at the moment, but most of them aren’t quite so mad as to drive 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 wasted opportunities”.
“Britain has so much potential but we are falling behind on the global stage, while mortgages, food and energy costs all go up and up,” she said.
“What Britain needs in the autumn statement are fairer choices for working people and a proper plan for growth.”
This article was amended on 17 November 2022. Jacob Rees-Mogg told ITV’s Peston he opposes tax increases, not tax cuts as an earlier version said.