Hm Treasury
Introduction
Mr Speaker,
In the face of unprecedented global headwinds, families, pensioners, businesses, teachers, nurses and many others are worried about the future.
So today we deliver a plan to tackle the cost-of-living crisis and rebuild our economy.
Our priorities are stability, growth, and public services.
We also protect the vulnerable because to be British is to be compassionate and this is a compassionate government.
We are not alone facing these problems but today our plan reflects British values as we respond to an international crisis.
We are honest about the challenges and fair in our solutions.
Yes, we take difficult decisions to tackle inflation and keep mortgage rises down.
But our plan also leads to a shallower downturn; lower energy bills; higher long-term growth; and a stronger NHS and education system.
Stability
Three priorities then today: stability, growth and public services.
I start with stability.
High inflation is the enemy of stability.
It means higher mortgage rates, more expensive food and fuel bills, businesses failing and unemployment rising.
It erodes savings, causes industrial unrest, and cuts funding for public services.
It hurts the poorest the most and eats away at the trust upon which a strong society is built.
The Office for Budget Responsibility confirms global factors are the primary cause of current inflation.
Most countries are still dealing with the fallout from a once-in-a-century pandemic.
The furlough scheme, the vaccine rollout, and the response of the NHS did our country proud - but they all have to be paid for.
The lasting impact on supply chains has made goods more expensive and fueled inflation.
This has been worsened by a Made in Russia energy crisis.
Putins war in Ukraine has caused wholesale gas and electricity prices to rise to eight times their historic average.
Inflation is high here but higher in Germany, the Netherlands, and Italy.
Interest rates have risen here but faster in the US, Canada and New Zealand.
Growth forecasts have fallen here - but fallen further in Germany.
The International Monetary Fund expect one third of the worlds economy will be in recession this year or next.
So the Bank of England, which has done an outstanding job since its independence, now has my wholehearted support in its mission to defeat inflation and I today confirm we will not change its remit.
But we need fiscal and monetary policy to work together and that means the government and the Bank working in lockstep.
It means, in particular, giving the world confidence in our ability to pay our debts.
British families make sacrifices every day to live within their means and so too must their government because the United Kingdom will always pay its way.
I understand the motivation of my predecessors mini-budget and he was correct to identify growth as a priority.
But unfunded tax cuts are as risky as unfunded spending which is why we reversed the planned measures quickly.
As a result, government borrowing has fallen.
The pound has strengthened.
And the OBR says today that the lower interest rates generated by the governments actions are already benefitting our economy and sound public finances.
But credibility cannot be taken for granted and yesterdays inflation figures show we must continue a relentless fight to bring it down, including a rock solid commitment to rebuild the public finances.
Richard Hughes and his team at the OBR today lay out starkly the impact of global headwinds on the UK economy and I am enormously grateful to him and his team for their thorough work.
The OBR forecast the UKs inflation rate to be 9.1% this year and 7.4% next year.
They confirm that our actions today help inflation to fall sharply from the middle of next year.
They also judge that the UK, like other countries, is now in recession.
Overall this year, the economy is still forecast to grow by 4.2%.
GDP then falls in 2023 by 1.4%, before rising by 1.3%, 2.6%, and 2.7% in the following three years.
The OBR says higher energy prices explain the majority of the downward revision in cumulative growth since March.
They also expect a rise in unemployment from 3.6% today to 4.9% in 2024 before falling to 4.1%.
Todays decisions mean that over the next five years, borrowing is more than halved.
This year, we are forecast to borrow 7.1% of GDP or 177 billion; next year, 5.5% of GDP or 140 billion; then by 2027-28, it falls to 2.4% of GDP or 69 billion.
As a result, underlying debt as a percentage of GDP starts to fall from a peak of 97.6% of GDP in 2025-26 to 97.3% in 2027-28.
I also confirm two new fiscal rules: the first is that underlying debt must fall as a percentage of GDP by the fifth year of a rolling five-year period.
The second, that public sector borrowing, over the same period, must be below 3% of GDP.
The plan Im announcing today meets both rules.
Todays statement delivers a consolidation of 55 billion and means inflation and interest rates end up significantly lower.
We achieve this in a balanced way.
In the short term, as growth slows and unemployment rises, we will use fiscal policy to support the economy.
The OBR confirm that because of our plans, the recession is shallower, and inflation is reduced. Unemployment is also lower with about 70,000 jobs protected as a result of our decisions today.
Then, once growth returns, we increase the pace of consolidation to get debt falling.
This further reduces the pressure on the Bank to raise interest rates because as Conservatives we do not leave our debts to the next generation.
So, Mr Speaker, this is a balanced path to stability: tackling the inflation to reduce the cost of living and protect pensioner savings whilst supporting the economy on a path to sustainable growth.
But it means taking difficult decisions.
Anyone who says there are easy answers is not being straight with the British people: some argue for spending cuts, but that would not be compatible with high quality public services.
Others say savings should be found by increasing taxes but Conservatives know that high tax economies damage enterprise and erode freedom.
We want low taxes and sound money. But sound money has to come first because inflation eats away at the pound in peoples pockets even more insidiously than taxes.
So, with just under half of the 55 billion consolidation coming from tax, and just over half from spending, this is a balanced plan for stability.
Tax
I turn first to our decisions on tax. I have tried to be fair by following two broad principles: firstly, we ask those with more to contribute more; and secondly, we avoid the tax rises that most damage growth.
Although my decisions today do lead to a substantial tax increase, we have not raised headline rates of taxation, and tax as a percentage of GDP will increase by just 1% over the next five years.
I start with personal taxes.
Asking more from those who have more means that the first difficult decision I take on tax is to reduce the threshold at which the 45p rate becomes payable from 150,000 to 125,140.
Those earning 150,000 or more will pay just over 1200 more in tax every year.
We are also taking difficult decisions on tax-free allowances.
I am maintaining at current levels the income tax personal allowance, higher rate threshold, main national insurance thresholds and the inheritance tax thresholds for a further two years taking us to April 2028.
Even after that, we will still have the most generous set of tax-free allowances of any G7 country.
I am also reforming allowances on unearned income.
The dividend allowance will be cut from 2,000 to 1,000 next year and then to 500 from April 2024.
The Annual Exempt Amount for capital gains tax will be cut from 12,300 to 6,000 next year and then to 3,000 from April 2024.
These changes still leave us with more generous allowances overall than countries like Germany, Ireland, France, and Canada.
And, because the OBR forecasts half of all new vehicles will be electric by 2025
to make our motoring tax system fairer I have decided that from April 2025 electric vehicles will no longer be exempt from Vehicle Excise Duty.
Company car tax rates will remain lower for electric vehicles and I have listened to industry bodies and will limit rate increases to 1ppt a year for three years from 2025.
The OBR expects housing activity to slow over the next two years, so the stamp duty cuts announced in the mini-budget will remain in place but only until 31st March 2025.
After that, I will sunset the measure, creating an incentive to support the housing market
and all the jobs associated with it
by boosting transactions during the period the economy most needs it.
I now turn to business taxes.
While I have decided to freeze the Employers NICs threshold until April 2028, we will retain the Employment Allowance at its new, higher level of 5,000. 40% of all businesses will still pay no NICs at all.
The VAT registration threshold is already more than twice as high as the EU and OECD averages. I will maintain it at that level until March 2026.
My RHF the PM successfully negotiated a landmark international tax deal to make sure multinational corporations including big tech com