UK’s Jeremy Hunt delivers budget announcements aimed at reviving stagnant economy

U.K. Finance Minister Jeremy Hunt is delivering his Autumn Statement budget announcement of the United Kingdom, as he faces pressure from within the ruling Conservative Party to implement tax cuts as the country’s economy stagnates.

Prime Minister Rishi Sunak’s government has adopted a cautious approach to fiscal policy in the wake of the bond market panic unleashed by his predecessor Liz Truss’ disastrous “mini-budget” last fall.

The U.K. economy flatlined in the third quarter, and Hunt is expected to announce measures intended to bolster the country’s anemic growth outlook by attracting business investment and removing barriers to large scale infrastructure projects.

Headline inflation came in at an annual 4.6% in October, its lowest reading in two years and sharply lower than the 11.1% rate when Hunt took over the country’s finances in October 2022. However, it remains well above the Bank of England’s 2% target and continues to weigh on household finances.

Hunt will have more money at his disposal than a year ago and is under pressure from the right of his party to enact tax cuts. He is expected to announce reductions in National Insurance and business tax, while one Treasury minister has suggested that personal taxes could also be coming down.

Tax levels in the U.K. currently sit at their highest levels since records began 70 years ago. While Hunt has not ruled out tax cuts, he has emphasized the fragile state of the economy and reiterated that reducing living costs is the government’s priority.

The U.K. Treasury last week announced £4.5 billion ($5.6 billion) in funding for British manufacturing to boost investment in eight sectors across the U.K., available for a five-year period from 2025.

Government will meet 2% of GDP defense spending

Hunt says the U.K. will meet its NATO commitment to spend 2% of GDP on defense, which he says is “critical at a time of global threats to the international order.”

Public sector borrowing set to fall from 4.5% this year to 1.1% in 2028/9

According to the OBR, borrowing is lower this year and next, and on average across the forecast, by £0.7 billion every year compared to the spring forecast, Hunt says.

Government borrowing falls from 4.5% of GDP in 2023/4 to 3% next year, 2.7% in 2025/6, 2.3% in 2026/7, 1.6% in 2027/8 and 1.1% in 2028/9.

“That also means we meet our second fiscal rule, that public sector borrowing must be below 3% of GDP not just by the final year, but in almost every year of the forecast,” Hunt says.

“Some of this improvement is from higher tax receipts from a stronger economy, but we also maintain a disciplined approach to public spending.”

Debt falling as a percentage of GDP

According to the OBR, underlying debt is now forecast at 91.6% next year, 92.7% in 2024/5 and 93.2% in 2026/7 before declining in the final two years of the forecast to 92.8% in 2028/9.

“That is lower in every year compared to forecasts in the spring. We therefore meet our fiscal rule to have underlying debt falling as a percentage of GDP in the final year of the forecast with double the headroom compared to the OBR’s March forecast, and we will continue to have the second-lowest government debt in the G7,” Hunt said.

State pension to rise by 8.5%

Hunt says the full new state pension will rise by 8.5% to £221.20 per week, worth up to £900 per year for pensioners.

Including today’s measures, this takes this government’s “total commitment to easing cost of living pressures” to £104 billion, he adds.

Universal Credit and other benefits to increase by 6.7%

Hunt says Universal Credit and other benefits will increase by 6.7%, in line with September’s annual inflation figure and amounting to an average increase of £470 for 5.5 million households next year.  Universal Credit is a means-tested social security payment to low-income or unemployed households.

Local housing allowance will be increased to 30th percentile of local market rents, giving 1.6 million households an average of £800 of support next year.

Inflation to fall to 2.8% next year

The independent Office for Budget Responsibility projects inflation will fall to 2.8% before the end of 2024 and back to the Bank of England’s 2% target in 2025.

UK needs a ‘more productive state, not a bigger state’

Hunt says the U.K. needs a “more productive state, not a bigger state,” setting a new public sector productivity growth target of 0.5% per year.

This follows an existing plan to cut the size of the civil service to pre-pandemic levels, as part of measures to ensure public sector spending growth “is always lower than growth in the economy,”

Treasury already earmarked £4.5 billion for British manufacturing

The Treasury last week announced £4.5 billion in funding for British manufacturing to boost investment in eight sectors across the U.K., available for a five-year period from 2025.

This includes £960 million for clean energy, over £2 billion for the automotive industry, £975 million for aerospace and £520 million for life sciences manufacturing.

The entire manufacturing sector makes up over 43% of all U.K. exports and employs around 2.6 million people, and Finance Minister Jeremy Hunt said the government was targeting funding to “support the sectors where the U.K. is or could be world-leading.”

“Our £4.5 billion of funding will leverage many times that from the private sector, and in turn will grow our economy, creating more skilled, higher-paid jobs in new industries that will be built to last,” Hunt said in a statement.