It’s that time of year when we have to dust off copies of Economics for Dummies to try to understand what Jeremy Hunt is up to.
There will be a second opportunity to bend our brains in the Spring Budget before the General Election.
It was never meant to be like this. Traditionally the Budget is when tax and spending plans are announced while the Autumn Statement is a stock take on how the British economy is doing and a forecast on its performance in the future.
This Chancellor has got greedy. He wants to have two Budgets. And so we are to be given a raft of changes which will bring joy to some and agony to others.
WATCH NOW: Liam Halligan on what tax cuts could be seen in Autumn Statement
I was always a supporter of the cautious approach Mr Hunt was taking, unlike Liz Truss and Kwarsi Kwarteng last year. This Chancellor recognised that most important economic rule of all, that injecting extra money into the economy would increase spending and fuel inflation.
But Mr Hunt and Rishi Sunak are now being held hostage by the Tory right, and to feed their appetite for tax cuts they seem prepared to serve up a smorgasbord of them.
Inflation may be falling but 4.6 per cent is still more than double the Bank of England target of two per cent when tax cuts would have been viable. That’s the buffer zone in which a little more demand for goods can be tolerated without pushing up prices.
Now the Chancellor just needs a headline which screams “TAX CUTS” so he eyed up inheritance tax because as people tend not to splurge their inheritance it would not add to inflation.
Moderate Tories grumbled that it wouldn’t do much to ease the cost of living crisis either as only the very rich would benefit, so Mr Hunt appears to be having second thoughts.
Couples with £1million in assets are exempt when one dies which is why only one in 100 wealthy estates pay it. So increasing the threshold or slashing the 40 per cent rate would only help 27,000 people.
The argument this is a tax on death and should be abolished really doesn’t wash because it’s not the dead who pay it but the living to whom they leave their money. They’re the ones who enjoy a sudden windfall in unearned income.
VAT was another possibility. The logic goes that as it is a sales tax knocking a bit off would reduce prices and cut inflation. Er…no. Those who are not economic dummies see the flaw in this thinking.
A 2.5 per cent cut means there will be an extra £18billion sloshing about which is in itself a spending stimulus. Mortgages are zero rated and there’s only five per cent VAT on gas and electricity bills so not much help there.
And retailers are not obliged to pass on the saving. They only tend to do so when demand is low as it was in 2009 following the financial crash. That’s why Labour Chancellor Alistair Darling slashed it.
Jeremy Hunt will deliver the Autumn Statement on Wednesday
When Rishi Sunak was Chancellor during Covid he cut VAT for hospitality to five per cent in July 2020, upped it to 12.5 per cent in October, 2021, and restored the full 20 per cent by April, 2022. But during this time the price of eating out did not fall. It was a measure more designed to help the industry than its customers.
Mr Hunt says that if he cuts all the taxes being speculated on there would be none left. Well, that would make him popular!
Until, of course, the NHS collapses, our armed forces have to be disbanded, police are only to be found in JobCentres, there are no schools for our children and inflation goes through the stratosphere.
He should stick to his guns on Wednesday and admit now is not the time for election giveaways.
The alternative is to say the Tories have given up on sound economic management and will embrace short-term gain for long-term pain.