Hunt denies planning to lift fuel duty; pound higher despite grim outlook – business live | Business

The Institute for Fiscal Studies is presenting its assessment of the autumn statement now.

IFS director Paul Johnson is outlining how Jeremy Hunt appears to have delayed the “properly tough” decisions needed to balance the public finances.

The chancellor may be hoping that an economic upturn will reduce the need for a painful squeeze.

Or possibly a general election might mean Labour face the tough task of repairing the nation’s finances.

As Johnson puts it:

“Hemmed in by rising interest payments and poor growth prospects, the chancellor decided to allow borrowing to rise, and to put off properly tough decisions for another couple of years,”

“He may hope that things will look better by then, or perhaps that it will be somebody else’s problem.”

Sterling is bouncing back from some small losses yesterday, despite the clouds of gloom over the economy.

The pound has risen by three quarters of a cent this morning to $1.193, and is also up half a eurocent to €1.15.

This chart shows how the pound is near a three-month high, having hit a record low around $1.03 after the mini-budget chaos.

But…Ipek Ozkardeskaya, senior analyst at Swissquote Bank, warns that the outlook for the pound remains bearish:

From the economic lenses, both the U-turn on spending cuts, and higher energy bills will boost inflation, and that could be negative for the pound, if the Bank of England doesn’t compensate with higher interest rate hikes. And the BoE said last time that it won’t go crazy hawkish to avoid a complete economic meltdown in the UK.

And indeed, what was really scary for sterling traders yesterday was the gloomy growth forecast. Jeremy Hunt said that the UK is already in recession – stating the obvious. But he also said that growth will fall 1.4% next year, versus a 1.8% expansion printed previously, and recession will last over a year, while the BoE will probably be raising rates to fight inflation during this period.

Jeremy Hunt has insisted that he hasn’t decided to raise fuel duty by 12p per litre next year.

Yesterday’s report from the Office for Budget Responsiblity anticipated that Hunt would raise the tax on petrol and diesel by 23% in March.

That would more than reverse the 5p/litre temporary cut made by Rishi Sunak earlier this year, and bring in £5.7bn in extra tax receipts next year,

But Hunt told broadcasters this morning that a decision hasn’t been made, saying:

Let me clear that up, that is not government policy.

We will make a decision on that at the next budget in the Spring.

That was just an assumption that the OBR made – they’re an independent organisation, they make assumptions.

We have made no decision on that at all.

The UK retail sector faces a bleak outlook, despite the small pick-up in demand in October, experts are warning.

Jacqui Baker, head of retail at audit, tax and consulting firm RSM UK, predicts that next week’s Black Friday sales may be disappointing for retailers hoping to shift stock.

‘Although there was an uptick in retail sales last month, driven by clothing up 2.5%, it’s hard to ignore what’s likely to be a bleak winter ahead. Consumers are looking at how they can tackle the fallout from the cost-of-living crisis in their spending decisions; even essential spend on food was down 1%, with shopping baskets getting smaller as inflation takes a hold.

‘Despite the cost-of-living allowance given to consumers last month to offset the energy price cap increase, there’s still little sign of early Christmas cheer for retailers. This has led to many not being able to hold their nerve and starting offers early.

Spending was hit by the mini-budget turmoil, which spooked consumers, and rising inflation, says Paul Donovan, chief economist at UBS Global Wealth Management.

UK October retail sales were weak.

The market debacle following the Truss government’s fiscal plans created news headlines that affected consumer’s willingness to use savings and borrowings to support consumption.

With wage bargaining power weak and real wages negative, this softened consumer spending.

Kevin Bright, global leader of McKinsey’s consumer pricing practice, says shoppers are determined to cut back:

The slight uptick in October spend should not be a source of optimism, as it is well within the monthly volatility of this overall downward trend in retail spend.

“The decrease that we see in the food sales in October, are likely to be mirrored in non-food categories.

Our latest consumer research shows that UK consumers intend to spend significantly less on certain non-food categories. 52% of consumers say they plan to spend less over the next three months on footwear and consumer electronics and 50% say they will spend less on apparel.

Hunt was also quizzed about whether rejoining the single market would boost growth and improve the economic outlook.

Hunt says it wouldn’t be “the right way to boost growth”, as it would go against what Brexit supporters voted for – which was to have control of our borders.

Membership of the single market requires free movement of people, as well as goods, services and capital.

The chancellor doesn’t deny that the single market has economic advantages, but insists:

I think we can find other ways that will more than compensate for those advantages.

Hunt also says he’s confident that most of the trade barriers with the European Union could be removed without re-joining the bloc’s single market.

“I have great confidence that over the years ahead we will find outside the single market we are able to remove the vast majority of the trade barriers that exist between us and the EU.

Hunt suggests that in the long-term we can turn the UK into the next Silicon Valley, using the strength of its universities and the genius of UK innovation.

Q: Why haven’t you done anything about non-doms?

These non-doms are extremely wealthy people with non-domicile tax status, meaning they don’t have to pay any tax on their offshore income.

Hunt claims that having non-doms spending money in the UK is good for the economy, telling the Today programme.

I would rather wealthy foreigners spent their money in Britain, because that supports jobs in our shops, in our restaurants, in our hotels.

In the end I have tried to avoid anything that damages long-term growth.

Q: So did the Treasury tell you that abolishing non-dom status would be bad for growth?

Hunt says the Treasury told him they were “very unsure about the figures that were being banded around” for the savings from abolishing non-dom status.

Like me, they wanted to be very sure that we weren’t doing things that damaged the UK’s attractiveness.

These foreigners could live easily in Ireland, France, Portugal or Spain, which also have non-dom schemes, he adds.

Q: So did you not have your own figure for what taxing non-doms would raise?

No, Hunt says, because the government doesn’t agree with Labour’s figure [Rachel Reeves has said scrapping the tax break in full would raise £3.2bn a year].

Hunt says:

The Treasury did not tell me that it would help the economy to do this.

The Guardian reported earlier this month that Treasury officials were examining whether the autumn statement could include changes to non-dom status.

Experts have suggested that cutting the duration that wealthy people could avoid paying tax on their global income from 15 to five years could raise an additional £1.6bn a year.