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After months of saying it would be too dangerous to cut taxes – the Government’s position in the wake of Liz Truss’s disastrous mini-Budget – the Chancellor is understood to have come to the conclusion that the time for tax cuts is now.
He will also make a series of announcements on welfare payments, pensions and other planning reforms.
Business tax cuts
There are many calls on a chancellor, and Mr Hunt has faced increased pressure in recent weeks to slash both business and personal taxes.
But he has long made it clear that his priority is reducing levies on business.
He will extend “full expensing”, under which firms get 25p back for every £1 they invest.
They do this by claiming 100 per cent capital allowances on qualifying plant and machinery investments in one go.
This measure, which had been due to end in 2026, will free up £10 billion a year for firms.
A reduction of the levy for the retail and hospitality sector was brought in over the pandemic, and was meant to end next spring.
Mr Hunt is believed to have looked at extending this deadline, or by offering further help for small businesses.
Personal tax cuts
A cut to national insurance in the Autumn Statement is considered more likely than an income tax cut.
If it happens, it will be a big change for Rishi Sunak, who actually increased NI to pay for social care when he was chancellor under Boris Johnson.
Mr Sunak and Mr Hunt have also spent the past few months warning that tax cuts would be inflationary.
But now that inflation has fallen to 4.6 per cent – half its value at the start of the year – the pair say it is time to change tack.
Mr Sunak said his “argument has never been that we shouldn’t cut taxes – it’s been that we can only cut taxes once we have controlled inflation and debt”, adding that it was time for the Government to “begin the next phase” of its plan and “turn our attention to cutting tax”.
It is not expected there will be any reductions in stamp duty and inheritance tax, with these changes possibly put off until the budget in March.
If income tax is not cut, it seems likely that measure could be saved for the Budget.
In addition, there will have to be a decision on whether to extend the fuel duty freeze again. Mr Hunt could announce it on Wednesday or save it until the spring.
The Autumn Statement will include major reforms to force more benefit claimants to look for jobs.
It will close loopholes to the work capability assessment which enable hundreds of thousands of people to evade work by claiming they have problems such as anxiety.
From 2025, people with mobility and mental health problems will be told to look for work that they can do from home – and could lose thousands a year if they refuse.
A £2.5 billion Back to Work Plan will help up to 1,100,000 people with long-term health conditions, disabilities or long-term unemployment to look for and stay in work, with tough new benefit sanctions for those who can work but choose not to.
Benefit claimants who fail to seek work could lose their right to free prescriptions and legal aid.
The Chancellor will also use his statement to confirm he will increase benefits in full by 6.7 per cent, in line with September’s inflation figures, after considering using October’s lower 4.6 per cent figure.
The National Living Wage will increase by more than a pound to £11.44 per hour from April.
It is currently £10.42 an hour for workers over 23. Mr Hunt has decided the rate will also apply to 21 and 22-year-olds for the first time.
It means a full-time worker aged 23 on the wage would receive a rise worth £1,800 a year. A 21-year-old would see an effective £2,300 annual rise.
Pensions will rise by 8.5 per cent, in line with the normal measure of earnings.
Stripping out the effect of bonuses from the figures had been considering, giving a lower increase of 7.8 per cent.
It would mean the full new state pension would increase to £203.85 per week to £221.20, or £11,502.40 per year.
The decision means that Lord Cameron’s pensions triple lock will be adhered to.
And it suggests that Mr Hunt has – for now – rejected the advice of his former deputy at the Treasury John Glen who was recorded discussing “rationing” the winter fuel payment to offset the huge cost of the triple lock.
Other pension reforms
Mr Hunt is also expected to introduce a pension “pot for life”, allowing people to combine their savings for later life.
His reforms will give savers the right to nominate the scheme into which their employer pays contributions, rather than join their employer’s default arrangement.
Under the current system, workers are automatically enrolled into pots that are arranged by an individual’s employer.
Workers who move jobs frequently collect a number of small pots which can be difficult to manage and costly to combine.
A Treasury source told the Financial Times: “Helping people keep the same pension pot will stop billions of pounds being needlessly lost and make sure tomorrow’s pensioners benefit from every penny they save.”
Treasury ministers are considering sweeping reforms to Isas to push more savers into investing.
One option includes allowing savers to open multiple Isas of the same type in a single tax year without losing their £20,000 allowance.
Mr Hunt is also considering giving savers who invest in British companies an extra £5,000 tax-free allowance.
Sources close to Mr Hunt also said he is considering introducing a new stocks Isa that can only be invested in UK companies’ shares.
Isas currently allow savers to put away up to £20,000 a year without having to pay tax on interest or returns.
It is also understood that Mr Hunt is close to approving plans to change decades-old legislation to allow so-called fractional shares to be held in savers’ Isas. This would make it easier to invest in some highly-priced stocks.
It is expected that the Chancellor will announce that public spending will increase by no more than 1 per cent a year for much of the next decade.
An annual spending increase of 1 per cent above inflation is much lower than rises in recent years.
And it means that unprotected departments such as those that fund the courts, prisons and adult social care face real-term cuts in the year ahead.
It is even possible that Mr Hunt could choose a figure lower than 1 per cent, should the updated economic figures in coming weeks dramatically worsen.
Families living close to new pylons and electricity substations will receive up to £1,000 a year off their energy bills.
The plan is to convince people to support upgrades in their area, which are needed in part for new electric vehicle charging points.
However, it is not yet known how many households will get the full discount, and how close houses would have to be to qualify for the money off.
A Treasury spokesman said: “By speeding up the planning system – including the rollout of electric vehicle charge-points – we will be tackling one of the most common issues raised by businesses who are keen to invest in the UK.”
West Yorkshire will be confirmed as the UK’s third Investment Zone as part of a scheme to unlock over £220 million of investment.
The zone, concentrated on Huddersfield, Bradford and Leeds, could create more than 2,500 new jobs over five years.
The Chancellor will also announce that the programme of investment zones could be doubled to 10 years, with more funding and tax reliefs on offer.
Help for first-time buyers
Mr Hunt is also reportedly planning new policies to help people to buy their first home.
One option is to extend the existing mortgage guarantee scheme that helps buyers purchase their first property with just a 5pc deposit.
The scheme, introduced in 2020 by Mr Sunak when he was chancellor, applies to properties worth up to £600,000. The policy encourages lenders to offer low-deposit mortgages as the state underwrites some of the risk.
Reports suggest Mr Hunt is looking at ways to extend the scheme, which was due to end in December.
The move, if signed off, will aim to boost homeownership among younger people who are finding it difficult to get on the housing ladder because of high mortgage rates.
Mr Hunt has also reportedly considered increasing the property price cap on the existing range of Isas, and potentially introducing a new Isa for first-time buyers following the closure of the Help to Buy scheme in March.
The existing Lifetime Isa lets people save tax-free and receive a government bonus to buy a house worth up to £450,000.
What is holding Hunt back?
Falling inflation means that Mr Hunt has around £13bn of headroom for tax cuts, according to estimates from the think tank the Resolution Foundation. That is double what he had in the spring.
But Mr Hunt will stick to self-imposed tax and spending rules that require him to get debt falling in five years’ time.
These rules are policed by the Office for Budget Responsibility, which forecasts the state of the economy in the years ahead, and predicts whether or not the Government is on track to hit its goals.
So far, tax revenues are booming thanks to stealth levies on workers. The IFS estimates that a six-year freeze in income tax thresholds is the equivalent of a 6p increase in income tax. This will mean the Treasury can rake in an extra £52bn a year by 2027, according to the think tank.
Falling inflation will also help the Government cope with a debt interest bill that is expected to hit £94bn this tax year alone. It puts less pressure on Whitehall budgets, which are set in cash terms.
Overall, this means that Mr Hunt could cut some taxes but they may be targeted and in some cases temporary. He has made clear that any cuts that stoke inflation are off the table, as the focus is on getting price growth back to the Bank of England’s 2pc target.
What time will Jeremy Hunt give his Autumn Statement?
The Chancellor will give his statement around 12.30pm on Wednesday November 22. It immediately follows Prime Minister’s Questions. It usually lasts about an hour, after which Rachel Reeves, the shadow chancellor, will give her response.
Additional reporting by Tim Wallace