Chancellor Jeremy Hunt resembled a brainy physician advising a worried patient on Thursday. The unorthodox therapies of an alternative practitioner had done more harm than good. The prognosis was worse than expected, he said: the UK economy would contract by 1.4 per cent. With the deficit ballooning, conventional medicine was the only hope, via tax increases and spending cuts worth an estimated £55bn a year by 2027-28.
For global investors, the fact the statement was detailed mattered more than the details themselves. Hunt established his credentials for economic orthodoxy a month ago when he unwound predecessor Kwasi Kwarteng’s loopy growth plan. The Autumn Statement merely showed he might credibly fund his promises, which Kwarteng could not.
Gilt yields rose to 3.2 per cent and sterling slipped to $1.177 on a dire outlook rather than a disastrous chancellor. Stock movements showed little correlation to measures, which were heavily trailed.
Centrica and SSE bounced as if relieved that the blow had finally fallen. Hunt jacked up the windfall tax on energy profits from 25 to 35 per cent. He announced a further 45 per cent levy on the revenue that larger renewables generators make over £75 per megawatt hour. That tariff threshold was higher than forecast.
Renewables may get a compensatory fillip from another measure. Post-Brexit Solvency II reform has been keenly anticipated by anyone able to remain awake during debates over risk margins. Tests for the predictability of investment cash flows will ease. They had favoured mines that reliably produce coal over wind farms that harness unreliable breezes.
Capital requirements will be reduced too. That should free up some £100bn, according to the Association of British Insurers. Not bad as Brexit dividends go, though flexible buffer capital was never a doorstep icebreaker for Ukip canvassers in 2016.
Euphemists may, meanwhile, savour the Treasury’s move to “rebalance generosity” by delivering a sharp cut to R&D tax credits for small businesses and save £1.3bn a year. The hefty tax break may encourage fraud more than innovation.
The reform, to paraphrase UK crime dramas of yore “had Rishi Sunak’s dabs all over it”. The prime minister took a swing at R&D tax credits in his Mais lecture earlier this year.
The Autumn Statement, given Sunak’s prior stint as chancellor, was as much his as Hunt’s. Investors love it when their special friend the finance director is promoted to CEO. And that apparently applies to Sunak too.
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