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 which Jeremy Hunt is expected to announce on Thursday.
The chancellor is likely to use his autumn statement to say the need to save money and reduce national debt will require the household energy price cap to rise from £2,500 to a planned £3,000 to £3,100.
Hunt will also announce unexpected higher taxes on oil, gas and power companies that have seen their profits soar 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 must siphon up to £60bn from the economy through tax rises and spending cuts to help the Bank of England tame inflation.
Increases in capital gains tax and dividend tax are expected, while personal tax thresholds are also likely to be frozen for a further two years between 2025 and 2026. It could also increase the municipal tax, since the rule that limits municipalities to 3% rises unless they have a referendum, it could be raised to 5%.
The latest official cost of living figures showed the annual inflation rate jumped to a 41-year high of 11.1% last month, largely due to a 90% increase in the domestic energy bill.
The Office for National Statistics said that without the government’s support scheme the annual rate would have been close to 14%.
Hunt and Prime Minister Rishi Sunak have insisted that tackling the cost of living crisis is their top priority, although senior Labor figures and many economists believe inflation has peaked and will recede next year Many of the measures are expected to come into effect in 2024 or later, when the Treasury believes the economy will be better able to withstand the pressure.
Sunak was initially hostile to Labour’s demand for an extraordinary tax when he was chancellor, but eventually bowed to pressure to introduce one in May. Hunt will impose an even tougher tax on a wider range of energy companies.
Oil and gas companies will see the tax on windfall profits rise from 25% to 35%, extended by another two years until 2028.
Companies generating electricity from old wind and solar farms, as well as older nuclear plants, are likely to face a profit tax of between 40% and 45%.
A government source said “the whole focus is to reduce inflation”, with Hunt warning that persistently high inflation leads to industrial unrest, expensive food and fuel, business failure and job losses.
“If we go into recession it will be driven by inflation and today it has reached 11.1%. This obstructs any prospect of economic growth. Until we deal with inflation we cannot have long-term sustainable growth. Borrowing to cut taxes would have only added fuel to the fire. We are laying out a plan to get the debt down in the medium term and balance the books,” the source added.
Speaking ahead of the autumn statement, Mr Hunt said his priority would be to see those with the broadest shoulders bear the heaviest burden 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 increase benefits in line with inflation. There will also be extra support on the energy bill for vulnerable people, such as pensioners and benefit recipients.
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However, he will warn that stability “depends on making difficult decisions now”. The statement is likely to outline public spending cuts of around £25bn to £30bn, including cuts to capital spending such as savings on major infrastructure spending such as rail high speed But the NHS is expected to get an increase in its budget as trust leaders have called for extra funding to keep pace with inflation, of around £7bn.
“We are making tough decisions to deliver strong public finances and help keep mortgage rates low, but our plan also protects our long-term economic growth,” Hunt said before 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’ve faced bigger challenges before.
“We are not immune to these global headwinds, but with this plan for stability, growth and public services, we will weather the storm.”
Hunt will try to portray Britain’s economic woes as a global problem, glossing over the disastrous mini-budget of his predecessor, Kwasi Kwarteng, and former prime minister, Liz Truss, which caused market turmoil, raised interest rates ‘interest 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 cut its growth forecasts for the UK but will say Hunt’s measures should be enough for the government to meet its self-imposed rule of keeping debt as a share of national income on a downward path in five years.
Labour’s shadow chancellor Rachel Reeves said the UK was “held back by 12 years of Tory economic failure and missed opportunities”.
“The UK has a lot of potential, but we are falling behind on the global stage, while mortgages, food and energy costs go up and up,” he said.
“What Britain needs in the Autumn Statement is fairer options for workers and a proper plan for growth.
“That’s why Labor has a long-term plan to get our economy growing again, powered by the talent and effort of millions of workers and thousands of businesses. It will be fairer, greener and more dynamic.”
Over the weekend, he accused Hunt of choosing to tax workers while “doing little to close the tax loopholes that mean some of the wealthiest don’t pay their fair share”.