'There Is No Alternative': Inside Rishi Sunak And Jeremy Hunt's Dash For Cash

The prime minister and chancellor need to raise £50 billion to fill a black hole in the government's finances.
Rishi Sunak and Jeremy Hunt are ripping up Liz Truss's disastrous mini-budget
Rishi Sunak and Jeremy Hunt are ripping up Liz Truss's disastrous mini-budget
Damon Scheleur/HuffPost

“There is no alternative because the alternative has been tried and it failed.”

The senior Treasury official did not mince his words as he explained to HuffPost UK why Thursday’s autumn statement will be very different from the mini-budget delivered by Kwasi Kwarteng a few short weeks ago.

Any return to Trussonomics would “cripple” families and businesses by fuelling already-rampant inflation, the official added.

Back on September 23, however, the then Liz Truss government was going for growth. Kwarteng slapped £70 billion on the nation’s credit card to fund £45 billion-worth of tax cuts, claiming that’s what was needed to jump-start the UK economy.

But the pair’s economic radicalism sent the value of the pound plummeting and interest rates soaring as the money markets reacted with horror to what had been announced.

Just three weeks after unveiling his plans, Kwarteng was sacked by Truss, who only lasted another 11 days as prime minister before making way for Rishi Sunak.

Kwasi Kwarteng and Liz Truss's mini-budget caused economic chaos.
Kwasi Kwarteng and Liz Truss's mini-budget caused economic chaos.
Stefan Rousseau via PA Wire/PA Images

It means that when Jeremy Hunt, the new chancellor, stands up on Thursday morning, he faces the daunting task of having to repair the damage done by his predecessor.

Treasury sources say the size of the UK’s fiscal black hole “does change from week to week”, but the working assumption is that it currently stands at around £50 billion.

With more government borrowing off the agenda, that leaves spending cuts and tax rises as the only options Hunt has to come up with the necessary cash.

“At the moment we’re looking at spending cuts of up to £35 billion and tax rises of up to £25 billion,” a Treasury official told HuffPost UK.

That all adds up to a lot of pain for families, businesses and everyone in the country who relies on public services like schools, hospitals, the police and the transport network.

But government insiders insist the tough medicine is essential to bring down inflation, which currently stands at an eye-watering 10.1%.

“The number one thing that’s causing pain is inflation - that’s the hidden tax eating into people’s pay, their savings and the weekly food shop,” said one Treasury official.

“We need to wage a war on inflation, and stop trying to spend and borrow our way out because that would just send prices sky-rocketing even further.

“Unfunded tax cuts and unfunded spending have been shown to send the markets into a frenzy. Any repeat would cripple millions of families and businesses.”

Among the money-raising options being looked at is a rise in income tax for the highest earners.

HuffPost UK understands this is unlikely to come from increasing the top rate to 50p, but by lowering the threshold at which people start paying the 45p rate from £150,000 a year.

Other measures include extending the windfall tax on the bumper profits of energy firms until 2028 and increasing it from 25% to 30&, increasing the amount raised from inheritance tax and capital gains tax, and freezing income tax thresholds so that more workers are dragged into higher rates.

“There is no alternative because the alternative has been tried and it failed.”

On the spending side, a pledge to increase defence spending to 3% of gross domestic product (GDP) is likely to be ditched, while plans to put a cap on social care costs is also being delayed.

Government departments will also be asked to come up with billions of pounds-worth of savings, and major infrastructure products like HS2 and Northern Powerhouse Rail could also be shelved.

However, Hunt is expected to confirm that pensions and benefits will rise with inflation - heading off potential rebellions by Tory MPs.

And in a financial sleight of hand, the chancellor could decide to postpone the bulk of the spending cuts until 2025 - after the next general election.

As official data showed yesterday that the UK economy is heading for recession, Hunt made it clear that hard times are coming.

He said: “I am under no illusion that there is a tough road ahead – one which will require extremely difficult decisions to restore confidence and economic stability. But to achieve long-term sustainable growth, we need to grip inflation, balance the books and get debt falling. There is no other way.”

But many Tory MPs are deeply concerned that Hunt’s medicine for the UK’s economic ills will simply make the problem worse.

Asked how he and his colleagues will react if the chancellor announces steep tax increases, former party leader Iain Ducan Smith told Sky News: “It will be deep concern if we go over the top on tax rises because, as I say, it is absolutely a fact of life that tax rises will make the recession deeper.”

Iain Duncan Smith has warned that tax rises will prolong the looming recession.
Iain Duncan Smith has warned that tax rises will prolong the looming recession.
Aaron Chown via PA Wire/PA Images

Opposition parties are keen to pin the blame for the misfiring economy firmly on the Tories.

Shadow chancellor Rachel Reeves told HuffPost UK: “It’s vital that in the autumn statement, this government makes fairer choices that don’t lay the burden for this Tory-made economic crisis on working people and ordinary businesses again.”

“The Conservatives have worked our economy into the ground and left our public services on the brink,” says Sarah Olney, the Lib Dem Treasury spokesperson.

“Ministers must use next week’s autumn statement to launch a Mortgage Protection Fund, targeted at those most at risk of losing their homes, to offer struggling households a lifeline up to £300 a month.

“We also need to see our NHS and schools protected from any savage cuts the chancellor and prime minister might be planning.”


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