---
title: "What to expect in UK Chancellor’s plan to fix fiscal hole"
description: "Jeremy Hunt, the UK Chancellor of the Exchequer, will announce a major economic package on 17 November as he tries to stabilise public finances and recover credibility lost in the turmoil of Liz Truss’s ill-fated administration."
type: "NewsArticle"
publisher: "Daily Maverick"
site: "https://www.dailymaverick.co.za"
section: "Business Maverick"
author: "Bloomberg"
author_url: "https://www.dailymaverick.co.za/author/bloomberg/"
canonical_url: "https://www.dailymaverick.co.za/article/2022-11-07-what-to-expect-in-uk-chancellors-plan-to-fix-fiscal-hole/"
published: "2022-11-07T06:01:23"
lang: "en-ZA"
word_count: 746
---

# What to expect in UK Chancellor’s plan to fix fiscal hole

> Jeremy Hunt, the UK Chancellor of the Exchequer, will announce a major economic package on 17 November as he tries to stabilise public finances and recover credibility lost in the turmoil of Liz Truss’s ill-fated administration.

By Bloomberg · Published 7 November 2022, 08:01 SAST

## Content

Prime Minister Rishi Sunak’s finance minister is trying to identify £50-billion of spending cuts and tax increases to get debt falling as a proportion of gross domestic product over the medium-term. Though no final decisions have been taken, here’s what could happen:

#### Higher windfall tax on energy profits

Hunt is considering [extending](https://www.bloomberg.com/news/articles/2022-11-03/uk-s-hunt-considers-extending-windfall-tax-on-oil-and-gas-firms) the UK’s windfall tax on oil and gas companies, a levy first introduced by Sunak in May when he was chancellor. Hunt is looking at a significant expansion of the tax, raising the rate to 30% from 25%, and extending it to 2028 from 2026. He’s also considering applying it to electricity generators, according to a person familiar with the matter.

Such a move would increase revenue from the existing tax by 50% to £40 billion over five years, the *Times* newspaper [reported,](https://www.thetimes.co.uk/article/sunak-prepares-big-tax-grab-from-energy-firms-m7wdbv7pw)citing internal government estimates, though that’s dependent on volatile energy prices.

#### Freeze income tax thresholds

Hunt is due to extend a current four-year freeze on income tax thresholds and allowances, which was introduced by Sunak in 2021, raising about £5-billion a year by 2027-28, the *Financial Times* reported.

Due to high inflation, the freeze has the effect of dragging more people into the tax system or into higher tax bands, boosting revenue for the Treasury.

#### Increase capital gains tax

The chancellor is also weighing an [increase](https://www.bloomberg.com/news/articles/2022-11-04/uk-considers-hiking-capital-gains-tax-to-help-plug-fiscal-hole) in the headline rate of capital gains tax, a levy on profits from the sale of assets. Current rates range from 10% to 28%, and a one percentage-point increase in the higher rate would be worth about £145-million, according to Treasury estimates.

He’s also considering cutting reliefs and allowances.

Hit shareholders

The tax-free allowance for dividend income is in line to be [cut](https://www.bloomberg.com/news/articles/2022-11-03/uk-considers-hitting-shareholders-with-more-tax-in-autumn-budget), two people familiar with the matter said, a move that would hit shareholders and owner-managers of businesses. It’s currently set at £2,000, but reducing it to £1,000 would raise about £455-million a year, according to Treasury calculations.

Hunt is also considering a 1.25 percentage-points increase in dividend tax rates, the *Financial Times* reported.

#### Freeze foreign aid

Hunt is expected to maintain the foreign aid budget at 0.5% of GDP for another two years, instead of increasing it to 0.7% in 2024-25 as Sunak had previously promised. The UK had spent 0.7% of GDP on foreign aid but cut the amount to 0.5% during the coronavirus crisis.

The move would save £4-billion a year, the *Telegraph*[reported](https://www.telegraph.co.uk/politics/2022/10/28/rishi-sunak-could-freeze-foreign-aid-balance-britains-books/).

#### Cuts to government spending

Ministries are braced for real-terms spending cuts. The Treasury is considering pay rises of 2% across the public sector in 2023-2024, meaning below-inflation increases for nurses, teachers and police officers, the *Times* reported.

Cuts to spending on capital projects are also in prospect. Cabinet minister Michael Gove has indicated long-term projects could be delayed or axed.

*The Telegraph* on Monday reported that Hunt and Sunak are planning up £35-billion in spending cuts.

#### Cut the bank surcharge

Hunt and Sunak have a major decision to make about the bank surcharge, which is an 8% levy on bank profits in addition to the standard corporation tax rate. As chancellor, Sunak had said he would cut the 8% levy to 3%, because corporation tax is due to rise from 19% to 25% and he didn’t want the UK’s banking sector to become uncompetitive.

Hunt is expected to stick to Sunak’s plan to cut the surcharge to 3%, the *Sunday Times* [reported](https://www.thetimes.co.uk/article/ministers-cool-on-bank-windfall-tax-h65hrfbrw), citing unidentified government officials.

#### Decisions on welfare, pensions

The government also has to make politically contentious decisions about whether to raise welfare and pension payments in line with inflation – currently at 10% – or aligned to the lower measure of earnings growth. Opting for the latter would save £13-billion, but would likely trigger a major political backlash.

Sunak and Hunt plan to reveal a stealth tax raid on pensions later this month, with the pension lifetime allowance set to be frozen for two more years, the Telegraph newspaper reported. A rise would be in line with prices delayed from 2025 to 2027, meaning 2 million savers now face tax charges of up to 55% on their retirement funds by the end of that period, according to expert analysis.

A Saturday edition of the *Telegraph* said ministers have discussed reducing the rate at which income tax relief is applied to higher-rate taxpayers, from 40p to a flat rate as low as 20p. They’re also considering increasing the number of very high earners whose income tax relief is cut even further. **BM/DM**