Hunt and Sunak have set out a clear dividing line. Are they on the right side of it?

This week’s Autumn Statement was an attempt to look responsible but it may not be enough when the economic pain mounts

November 18, 2022
SOPA Images Limited / Alamy Stock Photo
SOPA Images Limited / Alamy Stock Photo

Politics is all about dividing lines and the Autumn Statement had more of them than a noughts and crosses grid. At one level—forming the vertical lines—Thursday’s statement was about differentiating Rishi Sunak and Jeremy Hunt from Liz Truss and Kwasi Kwarteng. When the chancellor insisted that “You cannot borrow your way to growth. Sound money is the rock on which long term prosperity rests” he was of course contrasting himself with his Tory predecessor, who sent the financial markets into a tailspin by ignoring this golden rule, at least as much as he was contrasting himself with the Opposition.

A rejection of Trussonomics was woven through a deliberately calm and careful speech. There were no surprises that could spook investors, who are still jittery after the disastrous mini-Budget only two months ago. Chancellors normally try to pull at least one rabbit out of the hat. This time, as one Whitehall source put it, “rabbits have been executed.” Sunak and Hunt know that they must work hard to regain the Tories’ reputation for economic competence. “Credibility cannot be taken for granted,” the chancellor admitted as he made a “rock-solid commitment” to rebuild the public finances.

Hunt described his priorities as “stability, growth and public services”—a deliberate rewriting of Truss’s commitment to “growth, growth and growth”. While Kwarteng promised £45bn of unfunded tax cuts, his successor announced £25bn of tax rises, including a six-year freeze on income tax thresholds, meaning six million people will be dragged into paying higher rates. Truss and Kwarteng tried to abolish the 45 per cent top rate of tax; Sunak and Hunt will make more people pay it.

The intended message was clear. The grown-ups are back, with two former head boys now running the government. The tone was deliberately conciliatory. When Kwarteng and Truss were in charge, they denounced the “Treasury orthodoxy” and the so-called “anti-growth coalition” that was holding Britain back. Hunt went out of his way to praise the OBR and the Bank of England, institutions whose independence is central to the UK’s economic fortunes.

But the chancellor was also trying to create horizontal dividing lines on the political noughts and crosses grid, drawing Labour into his game. As he addressed MPs, Hunt sounded strangely generous. There was more money for the NHS and social care, extra cash for schools, an extension of the support for energy bills. The chancellor claimed his statement was proof of “compassionate” government as he revealed that benefits and pensions would rise in line with inflation. After all the talk of austerity 2.0 it was almost as if Santa had turned up to parliament instead of Scrooge.

Although more than half of Hunt’s £55bn package of fiscal “consolidation” will come from spending cuts, almost all of the squeeze on public services has been put off until after the next general election. The chancellor made the case that a short-term boost in spending is needed to offset the recession that we are now in and keep more people in jobs, and even rewrote the fiscal rules to allow the Treasury to delay the pain.

It was a direct challenge to Labour. Keir Starmer and the shadow chancellor Rachel Reeves will now come under increasing pressure to say whether they will match the overall tax and spending figures set out by the Conservatives, even if they make different choices about how to distribute resources within that total. This will turn into a defining question between now and the election. Reeves currently has a holding line that the economic picture is so unpredictable that Labour cannot be expected to detail its plans this far out from polling day—as she put it on the Today programme on Friday morning, there have been four chancellors already this year, so how many more budgets will there be before the country goes to the polls?

But Labour’s electoral fortunes depend on persuading the voters that they can be trusted with the nation’s finances. Historically, Starmer’s party has been behind in the polls on economic competence, but recently Labour has overtaken the Conservatives on this crucial metric and Starmer and Reeves have thrown everything at trying to demonstrate their fiscal credibility. All pledges have been fully costed and the Labour leader and shadow chancellor have been busy wooing business leaders.

A growing number of shadow cabinet ministers are convinced that Labour will have to pledge to stick to the Tory totals in order to reassure the voters, and the markets. If they do so they will seriously reduce their room for manoeuvre in drawing up manifesto spending commitments. If they do not, they will leave themselves open to the accusation that they are creating a “fiscal black hole”. As one frontbencher says: “The test of being trusted with the nation’s finances is uniquely important and if we don’t pass it we don’t win. We have to be strong on financial stability, the electorate have got to look at Labour and think they are taking this stuff really seriously. That’s got to be the overwhelming priority now.”

This week’s Autumn Statement was all about politics, but the brutal economic realities will soon kick in. According to the OBR report, real household disposable income per person will fall more than 7 per cent over the next two years, taking incomes down to 2013 levels. If that comes to pass it will be the biggest fall on record. The Treasury’s own distributional analysis showed that more than half of British households will be worse off next year. That is the dividing line that matters most. When it comes to the next general election, many people will feel poorer and they will be looking for someone to blame.