Jeremy Hunt to unveil package of tax hikes and spending cuts in autumn statement to plug £54bn black hole
Jeremy Hunt will promise to weather an economic “storm” by raising taxes, cutting public spending and scaling back energy support to fill a £54bn black hole in the nation’s finances.
The chancellor will insist to MPs on Thursday that his autumn statement puts the UK on a “balanced path to stability” as he tackles the “enemy” of inflation, which has soared to a 41-year high.
But the measures could put him on a collision course with Tory MPs on the right of his party who are already voicing anger about the prospect of some of the plans.
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An 11th hour petition from two dozen Tory MPs, led by Jonathan Gullis, has been sent to the chancellor asking him not to hike fuel duty in the statement.
The package will be in the form of £30bn of spending cuts and £24bn in tax rises over the next five years – a stark contrast to Kwasi Kwarteng’s unfunded tax-slashing spending splurge two months ago.
Among the measures, annual energy bills for a typical household will stay capped at £2,500, but this will rise to £3,000 in April 2023, when support will become more targeted with additional payments for low-income households and pensioners, Sky’s political editor Beth Rigby understands.
On tax rises, those with the broadest shoulders will bear most of the burden, but there will be pain all around.
The chancellor is expected to lower the threshold for paying the highest rate of tax to £125,000 – down from the existing £150,000.
This is a marked difference to Liz Truss’s plans to scrap the 45p rate altogether, giving the highest earners an average tax cut of £10,000.
Analysis says lowering the threshold will bring an extra 246,000 people into the highest bracket at a cost to them of around £580 each a year, which in turn would raise the Treasury £1.3bn a year.
Mr Hunt is also expected to announce a freeze on personal income tax and national insurance tax thresholds lasting until 2028.
Sometimes referred to as a “stealth tax”, freezing tax thresholds drags more earners into paying higher rates of tax.
Mr Hunt has already hinted he will make it easier for local authorities to increase council tax, with reports suggesting the threshold for raising bills without a referendum could increase from 2.99% to 5%.
There is also expected to be a big increase in the windfall tax on energy companies, and a new tax on electricity generators.
Labour has previously said a windfall tax extension could raise an additional £50bn, and criticised what it calls the “loophole” that allows gas and oil firms to offset their tax liability if they invest back into the UK.
On spending cuts, departments are expected to be told to live within an envelope of the March Spending Review, when inflation at was 3%.
With inflation now at 11.1%, that amounts to a real-terms cut across the board, meaning tough choices will be necessary.
However, there will be some exceptions, with the NHS expected to get more money.
There is also likely to be some protection for the schools budget, Sky’s deputy political editor Sam Coates understands.
“There will inevitably be some good news after the weeks of doom-laden warnings,” he said.
Mr Sunak and Mr Hunt have spent weeks warning that tough choices lay ahead.
However, the prime minister told Sky News on Tuesday that “fairness and compassion” will be at the heart of his decisions.
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Rishi Sunak refuses to apologise for the economic turmoil Liz Truss’s short-lived government caused for the UK
It is understood the chancellor will keep the triple lock for pensioners in his autumn statement – honouring a manifesto commitment.
He is also expected to uprate benefits in line with inflation, rather than earnings (a controversial move that would have saved £5bn).
The government has not confirmed what measures will be in the statement, but there has been a constant stream of measures reportedly being considered.
This “pitch rolling” helps markets get an idea of what is coming down the road and avoids spooking traders.
When Ms Truss and Mr Kwarteng made several surprise announcements in their mini-budget in September, it contributed to the financial chaos which saw the pound crash and the Bank of England forced to intervene to prevent pension funds from collapsing.
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Analysis released on Monday by the independent Resolution Foundation think tank found the mistakes they made cost the UK £30bn, doubling the sum the Treasury says will have to be raised.
Mr Hunt will say that his “difficult decisions” are necessary to keep mortgage rates low and tackle the rocketing energy and food prices intensifying the cost of living crisis.
“Families across Britain make sacrifices every day to live within their means, and so too must governments because the United Kingdom will always pay its way,” he is expected to say.
But Tories on the right of the Conservative Party are already voicing anger about the prospect of raising taxes.
Among the Tory critics, former cabinet minister Esther McVey has warned she will not support tax rises without the scrapping of the “unnecessary vanity project” of HS2.
Former business secretary Jacob Rees-Mogg told ITV’s Peston he would vote for the budget so as to not bring the government down, but warned he opposes tax increases, which he believes “risks making a recession worse”.
Labour has also warned that Britain is “falling behind on the global stage”.
Shadow chancellor Rachel Reeves said: “The country is being held back by 12 years of Tory economic failure and wasted opportunities and working people are paying the price.
“What Britain needs in the autumn statement are fairer choices for working people, and a proper plan for growth.”
And Sharon Graham, the general secretary of the Unite union, warned Mr Hunt “workers are ready to take a stand”.
“He can choose to inject investment into the NHS and deliver a fair pay deal – or he can leave it as it is today, in danger of fatal collapse,” she said.
Several people have been killed after Russia launched its largest aerial attack on Ukraine since August.
More than 200 missiles and drones were deployed, Volodymyr Zelenskyy said, as he condemned a “massive combined strike” on “all regions”.
Andrii Sybiha, Ukraine’s foreign minister, said “peaceful cities” and “sleeping civilians” were targeted.
Moscow is focused on the “energy infrastructure throughout Ukraine” and is trying to intimidate Ukrainians with “cold and lack of light”, Mr Zelenskyy said.
The president added: “The whole world sees and knows that we are defending ourselves against absolute evil, which does not understand any language but force.
“We need unity [and] the world needs unity. Only together can we stop this evil.”
A firefighter at the site of a Russian drone strike in Mykolaiv in southern Ukraine. Pic: State Emergency Service of Ukraine/Reuters
Two people were killed and a 17-year-old boy was injured after a Russian attack in the Black Sea port of Odesa, regional governor Oleh Kiper said.
Energy infrastructure was damaged, he said, leading to “interruptions in the supply of heat, water and electricity”.
In Mykolaiv, southern Ukraine, officials said two people were killed in a Russian drone attack.
Ukraine’s state emergency service said a multi-storey building, cars and a shopping centre were hit.
Two women were killed and six injured, including two children, it added.
In the central Dnipro region, two people died and three were wounded in a strike on a rail depot, while in Lviv, on the border with Poland, a woman was killed in a car.
Emergency services remove part of a Russian missile from an apartment building in Kyiv. Pic: Reuters
In the capital, Kyiv, mayor Vitali Klitschko said Russian attacks had caused a fire to erupt on the roof of a residential building, injuring at least two people.
People took refuge in metro stations, while emergency services were pictured removing part of a Russian missile from an apartment block.
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The Ukrainian military said it had destroyed 102 missiles and 42 drones launched by Russia.
Hypersonic missiles were among the 120 fired at Ukrainian territory, it said.
Air defences were active in “almost all” regions of Ukraine.
Equipment at thermal power stations has been “seriously damaged” during Russian air strikes, Ukraine’s largest private energy provider said. DTEK said its staff were working on repairs.
People sheltering in a metro station in Kyiv. Pic: Reuters
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Russia’s defence ministry confirmed it had attacked energy resources supporting Ukraine’s military-industrial complex, Russian news agencies reported.
Poland scrambled its air force early on Sunday because of the “massive attack by the Russian Federation using cruise missiles, ballistic missiles and unmanned aerial vehicles”.
Mr Zelenskyy sent his condolences to anyone affected by the latest Russian attacks.
He said “all necessary forces” were involved in restoring power and facilities.
On Tuesday, it will be 1,000 days since Russia launched what it calls its “special military operation”.
World
Under siege in Ukraine, schools go underground to keep life as normal as possible for children
If you know a teacher, or you are a teacher, you’ll understand that many in the profession consider their jobs one of the best in the world, while also acknowledging it can be one of the most stressful.
Teaching in a war zone takes it to another level on both fronts.
But imagine teaching in a war zone in say the London Underground or the Paris or New York metros?
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Well, that’s exactly what is happening in Kharkiv, Ukraine’s second largest city – a city attacked by Russia on a constant basis.
In 2023, the authorities banned children from being taught in regular school buildings here because of the threat they were under from missile strikes.
So Kharkiv city and its education department started working on a plan.
That plan has concluded with the construction of six schools in six metro stations, teaching 4,800 children daily whose families haven’t fled the war.
Intrigued by this new educational experiment, as it’s still considered, we were told to meet at the University metro station in the centre of the city and wait to be taken to the school.
Soviet-era metro stations, and particularly the platforms, are universally grand and ornate, although Ukraine’s are slightly more modest.
A young child at his desk in the underground school
The school (left) and the metro system (right)
Pedestrian walkways though are always crammed with florists, newspaper stands, mobile phone shops and cafes, and Kharkiv’s are no different.
What is different though is that next to the main platform entrance, an adjacent passageway has been sealed off by a white wall with three doors built into it.
We were ushered inside, past a guard and into a concourse with two desks.
Inside the classrooms in a city under siege
The classrooms are brightly decorated to try and maintain morale for the children
In front of us, we could see a wide staircase leading to a long corridor. Above us, large, shiny silver metal tubes stretched into the distance, pumping in air from above ground.
Lining the corridor, we could see a series of white interconnecting cabins, all brightly lit, and from them, we could hear the sounds of children laughing, music, and teachers conducting class in this strange subterranean school.
Perhaps the only school in the world with one corridor.
A door to one of the classes opened, and in pairs, a class of six and seven-year-olds emerged – their teacher at the front and an assistant at the rear.
They’re heading to the bathroom for a toilet break, the staff must keep an eye on them.
If any of the children were to make it out of the school, they could easily get lost in the underground system.
The pupils are spread across seven classrooms with a mix of yellow and green desks and chairs, and walls decorated with bright pictures like rainbows, sunshine and sunflowers, to try to create a cheery atmosphere.
“At first, the children were bewildered by studying here, it felt unfamiliar to them, but interacting with each other and with their teachers helped them to adapt,” Iryna Tarasenko from Kharkiv’s education department told me.
Iryna Tarasenko from Kharkiv’s education department
Sky News’ Stuart Ramsay and Kharkiv education official Iryna Tarasenko
Iryna is showing me around the school. They feel it’s their way of contributing to the war effort.
She said: “In the summer of 2023, the Defence Council didn’t permit children to study in regular school buildings, so, we had to find a solution. This is our frontline – our educational frontline.”
There are of course health concerns for both the teachers and the pupils spending so much time underground, so medical examinations are done on a regular basis.
It is an opportunity for doctors and behavioural specialists to monitor the effects of this war on them.
Dmytro Mitelyov is the neurologist on duty monitoring the children’s behaviour, checking for any signs of stress – physical and mental.
He gently asks each child how they’re feeling, and asks if they have any aches and pains.
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Neurologist Dmytro Mitelyov (centre) monitors children as they spend large parts of their days underground
“These are children who haven’t left Kharkiv since the war began, they live in a constant state of stress, multifaceted stress caused by a range of factors. They are exposed to things they see and hear, like alarms, explosions, and they feel it all,” Dmytro told me.
“When these children grow older, all the trauma they’ve endured during their formative years can, unfortunately, leave a lasting and serious imprint on their mental health. They haven’t had a healthy, carefree childhood – the kind where they can learn, play, and feel safe as children normally would.”
As the first group’s school day ends, children from one of Kharkiv’s most bombed districts, wrap up warm before being led to the surface to catch a school bus to their old school – which was hit by a missile.
It’s still where they meet their parents for normal pick-up.
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Students eating in their classrooms in Kharkiv’s metro system
We jump on the bus with them for the journey past destroyed government buildings, shopping centres and restaurants.
When the air raid suddenly sounds, I look around to see how the children and teachers on this bus will react.
They barely flinch it’s so common.
“People have, to some extent, adapted,” one of the headmistresses, Olena Nikolienko, said.
“If we see missiles coming, heaven forbid, we’ll stop near a designated shelter, following our evacuation plan, and that’s where the children will go for cover.”
Headmistress Olena Nikolienko
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Remember, these children are safe underground at school, up here they are not.
During the bus ride, 10-year-old Alisa began quietly sobbing. Her teacher told me her grandfather was killed four months ago on the frontline, and since then she has been prone to tears.
Alisa’s teacher comforted her and told her everything would be ok.
It feels like everyone here has to carry their own sadness.
Everyone.
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Parents, standing in the first snowfall of the season, greet the children as they get off the bus.
The kids run off the bus, and start throwing snowballs at each other, enjoying this precious moment.
It will be the last time they’re outside today.
Outgoing US President Joe Biden is set to meet his Chinese counterpart Xi Jinping today for what is likely to be his last time as US president.
The two leaders are expected to hold talks on the sidelines of a meeting of Asia-Pacific leaders in the Peruvian capital, Lima.
It comes against the backdrop of increasing tension in the US-China relationship with a potential trade war looming under a Trump presidency, several China hawks tapped for US cabinet positions and China’s growing status among global south countries as an emerging leader of an alternative world order.
This week China was focused on events in the southern city of Zhuhai.
First there was a car ramming attack at Zhuhai’s sports stadium which left 25 people dead. A shocking event that was heavily censored in China.
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What happened at Zhuhai sports centre?
Less than an hour’s drive away the country was holding its premier air show.
It was a military enthusiast’s dream, and not even intermittent rain could keep the crowds of tens of thousands of people away from relishing in the roar of jets in the skies above Zhuhai.
China’s fighter jet fleet
One of the main drawcards was China’s newest stealth fighter the J-35A. It will join the country’s J-20 in service for the People’s Liberation Army Air Force (PLAAF).
A J-35A stealth aircraft flies during the exhibition. Pic: Reuters
The J-10C was China’s aerobatics star of the show. There were daily displays of its prowess in sky-high manoeuvres and formations that impressed onlookers, leaving a streak of colours across the cloudy rain-clogged sky.
China’s aerobatic team
China’s military modernsiation programme is continuing apace
It boasts the largest navy in the world and the largest armed forces by active-duty personnel.
The People’s Liberation Army (PLA) Airforce is developing fast too.
Dr Nicole Leveringhaus, a China security expert from King’s College London, says: “China started with very little. It was devastated by wars on many fronts in the 30s and 40s. Its defence industry was depleted. In 70-plus years it’s built itself up and now we’re seeing the results.
“It’s an impressive feat to go from a bloated land-based peasant guerrilla army to what it has to today.”
Chinese pride and nationalism on display
Enjoying the air show spectacle, military fan Liu Liansong said: “I think the air show is great. It is a firm manifestation of the air force’s development from scratch. We as Chinese people feel very proud.”
Inside the air show
The air show included massive exhibition halls of military hardware, from drones to robotics, firearms and mock missiles. Merely getting from one end of the venue to the other through densely packed crowds was a mission.
Russia in the air
The other crowd puller this week was Russia’s aerobatic air force unit, performing daily theatrics at dizzying speeds.
It is another sign of the deepening ties between China and Russia.
Russia’s aerobatic team shows off for the crowd
One Russian tourist and recreational pilot, Yulia, told Sky News: “Both sides are looking for good communication in business, aviation and in many spheres including tourism.”
The secretary of Russia’s security council and former defence minister Sergei Shoigu also visited the air show, viewing both Chinese and Russian-made jets.
In Beijing, secretary Shoigu was quoted by Russian state media as saying: “I see the most important task as countering the policy of ‘dual containment’ of Russia and China pursued by the United States and its satellites.”
One of Russia’s jets up close
The West is increasingly frustrated by China’s support of Russia. The US has sanctioned two Chinese companies, accusing them of being involved in the production of Russian aerial drones used on the battlefield.
China insists it is not supplying weapons to Russia.
One of the companies, Xiamen Limbach Aircraft Engine Co, had a small stand in one of the exhibition halls. Its representatives declined Sky News’ request for an interview.
Tariff war brewing
Despite the raw military might on display in Zhuhai, in China there is uncertainty and unease about what an impending Donald Trump presidency will mean for global trade.
President-elect Trump has threatened blanket tariffs of up to 60% on Chinese products exported to the US.
This would be a serious blow to China’s target GDP growth and comes at a time when the country’s economy faces deep-set challenges.
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At the other end of the country, in Beijing analysts are weighing up the impact of possible tariffs and the Chinese government’s options to respond.
Senior Asia analyst Chim Lee, from The Economist Intelligence Unit, is not optimistic that a US-China agreement to minimise the damage can be reached.
Senior Asia analyst Chim Lee
“I think both sides have recognised that the era of making deals is passed,” Mr Lee said.
“We’re going to see China starting with some targeted measures, tariffs it feels more comfortable to impose,” he explained. “But there are also areas where China is starting to be a bit more aggressive.”
This action could include export controls on China’s production of critical minerals and retaliatory tariffs on US agriculture exports.
Trade competition, military posturing and complicated geo-political alliances have set the stage for a challenging next phase in US-China relations.
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