Man with a plan: Chancellor Jeremy Hunt
The Chancellor, Jeremy Hunt, is planning to tackle Britain’s surging welfare bills in his Autumn Statement amid increasing numbers of working-age people claiming benefits.
Under the most optimistic scenarios drawn up by the Office for Budget Responsibility, the public finances could be boosted by nearly £18billion if the Government is successful in getting people off health benefits and back into the workforce.
That figure is made up of £10.9billion in higher tax receipts from people returning to work, plus a saving of £6.5billion on welfare bills. It would enable the Government to slice £1.3billion from interest payments on the national debt.
If the campaign to reduce inactivity fails, then deficits and the debt could continue to balloon. The latest figures show increased spending on benefit payments – £14billion – accounted for more than half of the increase in overall current expenditure in the year to August.
Consultations are being initiated on toughening up rules for people who have fallen out of the job market and are claiming long-term sickness payments.
Hunt also is considering cutting back sharply on uprating benefits. The convention is to increase payments in line with the consumer prices index over the summer months, which would produce a figure close to eight per cent.
But the Paris-based Organisation for Economic Co-operation and Development forecast last week that inflation would fall to below three per cent in 2024.
The Chancellor’s main goal is to encourage people back to work. That would help to control inflation as staff shortages have put pressure on employers to succumb to high wage demands.
The number of working-age people classified as economically inactive rose by 63,000 in the three months to July and has climbed by 411,000 since the onset of Covid-19.
At the start of 2023, some 2.6 million people or 6.1 per cent of 16- to 64-year-olds were classified as economically inactive for medical reasons. Health benefits are seen as relatively accessible and generous compared with other welfare options.
The focus of the Autumn Statement on November 22 will be on reining in spending and securing headroom in the public finances. The goal is to create space in the 2024 Budget to lower the nation’s tax burden, which at 37 per cent of national income is at its highest since the 1940s.
Hunt finds himself in a better place on the public finances than projected at the start of the fiscal year. Buoyant tax receipts from VAT and PAYE have meant an under-shoot of £11.6billion in its first five months. This provides him with far more wiggle room than previously thought.
Hunt is not ruling out an eventual change in the VAT regime for overseas visitors to the UK when he frames the Budget. His work on the issue follows a concerted campaign from upmarket retailers, airports and the hospitality sector, which argue that the regime is driving overseas visitors elsewhere.
Tax reforms to be outlined in November are expected to focus on further incentives for business investment, which has taken off since the pandemic.
Business investment is calculated by one City economist to have climbed by 35 per cent since 2020. Hunt wants to build on the changes he introduced earlier this year when he expanded tax breaks for capital investment to 100 per cent.
The OBR, which marks the Government’s Budget homework, says that the rising cost to the taxpayer of long-term sickness is the difference between the Government ‘reducing debt levels by a comfortable margin’ or a rising debt burden.
It argues that reversing the rise in health-related inactivity and poor health in work could reduce large and growing pressure on the public finances.
Hunt wants to make it easier in the Budget for people with mental health problems to get back into the workforce by making access to support easier.
A key part of the reforms will be to make health benefits less generous, which might encourage people to seek work. With inflation falling, there is a chance to slash the uprating, making it forward- rather than backward-looking.
There are still nearly a million job vacancies across the economy. Many, ironically, are in the health and care sectors.
