Chancellor Jeremy Hunt warned spending cuts may prove ‘undeliverable’

British people have just got a lot poorer, a think tank has warned Jeremy Hunt - as Libby Wiener reports

Jeremy Hunt has been warned his planned spending cuts may prove “undeliverable” as he faced criticism from some senior Tories for raising taxes as he seeks to rebuild the UK’s battered public finances.

Former business secretary Jacob Rees-Mogg accused the chancellor of taking the “easy option” in Thursday’s autumn statement rather than bearing down harder on public spending.

He said the country needed lower taxes to drive up growth after Mr Hunt acknowledged that the UK was already in recession.

At the same time, independent analysts said Mr Hunt’s promised spending cuts would mean a prolonged squeeze on public sector pay despite a growing clamour in many services for real-terms increases after the years of austerity.

Paul Johnson, director of the Institute for Fiscal Studies (IFS), said the higher taxes imposed by the chancellor are likely to stay for "the next several decades".

He said "we are in for a long, hard, unpleasant journey" that "has been made more arduous than it might have been by a series of economic own goals", adding: “The truth is we just got a lot poorer."

The IFS said on on Friday that the biggest drop in living standards will “hit everyone” but that “Middle England" - those on average incomes between £20,000 to £40,000 per year - "is set for a shock” as taxes are hiked as wages fall.

Speaking to ITV News on Friday morning, the chancellor said that his financial statement is going to get a grip on "runaway inflation".

Jeremy Hunt said ideology played no part in his Autumn Statement

Mr Hunt said global factors, chiefly Russia's invasion of Ukraine, which has driven up international gas prices, and the pandemic, are largely to blame for the economic downturn.

The chancellor dismissed suggestions his Autumn Statement echoed the policies of Gordon Brown, the former Labour prime minister and chancellor.

"I do not think you can accuse me of being too Tory one moment and then being too Labour the next," he told ITV News Political Correspondent Libby Wiener.

"I am not being ideological about this. I am doing the right thing to protect people who are vulnerable, people on low incomes, people who are worried about rising energy bills."

He acknowledged there were some mistakes in Kwasi Kwarteng's mini-budget in September, but insisted that these were reversed within a couple of weeks, with the long-term cost of burrowing returning to more stable levels.

The chancellor hopes by the end of next year inflation - which is currently above 10% - will come down "markedly", helping businesses with soaring energy costs.

The IFS said delaying the difficult decisions as to where the axe will fall until after the next general election would “stretch credulity” and questioned whether they would actually happen.

The chancellor's plans have piled further pressure on the “squeezed middle” as tax rises would deliver a 3.7% income hit to typical households, according to analysis from the Resolution Foundation.

The think tank said the uprating of benefits in line with inflation would make a “huge difference to those on low-to-middle incomes”, but the focus on “stealthy” tax threshold freezes to raise revenue would extend far beyond high earners.

On Friday morning, the chancellor warned that the next two years will be "challenging", but said his package will help get the economy "on an even keel".

“People want a government that is taking difficult decisions, has a plan that will bring down inflation, stop those big rises in the cost of energy bills and the weekly shop, and at the same time is taking measures to get through this difficult period," he told Sky News.

What did the chancellor announce and how was it received? ITV News Deputy Political Editor Anushka Asthana reports

Mr Hunt set out his plans for £55 billion of tax hikes and spending cuts against the backdrop of a bleak set of economic forecasts from the Office of Budget Responsibility (OBR), underlining the damage wreaked by the war in Ukraine.

It said that rampaging inflation as a result of the energy price shock meant living standards are set to fall by 7% over the next two years – taking them back to where they were in 2014.

The economy is predicted to contract by 1.4% next year, unemployment is expected to rise by more than 500,000 while taxes are set to reach their highest level as a share of national income since the end of the Second World War.

In the Commons, Mr Hunt said the measures he was taking – £25 billion in tax rises and £30 billion in spending cuts – would mean the downturn in the economy would be “shallower” than would have otherwise been the case.

Spending on health, education and defence will be protected, support for energy bills will continue although at a lower level, while benefits and pensions will rise in line with inflation.

Much of the increase in taxes will come from extending the freeze on thresholds – meaning that more people get drawn into paying the basic and higher rates of tax, although different rates apply in Scotland.

Mr Rees-Mogg however strongly criticised the chancellor’s approach, warning the increases will hit many people who are not particularly well off, including some who are receiving benefits.

“I think we need to look at the efficiency of government to make sure money is well spent before reaching for the easy option of putting up taxes,” he told Channel 4 News.

“What we actually need to be doing is having a strategy for growth and looking to lower taxes.”

Mr Rees-Mogg is a longstanding critic of Rishi Sunak, having criticised his record of raising taxes when he was chancellor and quitting when he became prime minister.

Nevertheless there is likely to be concern some among ministers that his intervention could signal trouble ahead, with many Tory MPs concerned about raising taxes as the country enters a recession.

'We're all going to be worse off' - Paul Johnson, IFS director

The Resolution Foundation think tank said such cuts were “likely to be undeliverable” as they would require “years of holding down public sector wages below those in the private sector”.

In a round of post-statement broadcast interviews, Mr Hunt denied that he was putting off the difficult decisions.

“I think that a Conservative chancellor who stands up in the Commons and announced £25 billion of tax rises, I don’t think anyone would say that is deferring a horrible decision,” he told ITV’s Peston programme.

He insisted said that his plan offered a route back to “more normality” for families across the country.

“Conservatives win elections when they are trusted with the economy. What you have seen today is a Conservative chancellor outlining a very difficult path that gets us through this crisis,” he told the BBC.

Shadow Chancellor Rachel Reeves told ITV's Peston that an incoming Labour government would not "be able to do everything that it wants as quickly as it wants"due to the "mess the Tories have made on the economy".

"It imposes constraints upon us," she said.

"It's frustrating, because I know how important public services are for transforming society and the economy, but that is the mess that they have made."

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