Chancellor Jeremy Hunt’s blueprint to get UK back to work

The Chancellor, Jeremy Hunt, plans to tackle Britain’s rising welfare bill in his autumn statement, amid an increasing number of working-age people claiming benefits.

According to the Office for Budget Responsibility’s most optimistic scenarios, public finances could be boosted by almost £18 billion if the government manages to get people off healthcare benefits and back into work.

That figure includes £10.9 billion in higher tax revenue from people returning to work, plus a £6.5 billion saving on social security. It would allow the government to cut £1.3 billion from interest payments on the national debt.

If the campaign to reduce inactivity fails, deficits and debt could continue to rise. The latest figures show that increased spending on benefits – £14 billion – was responsible for more than half of the increase in total current expenditure in the year to August.

Discussions are being held on tightening the rules for people who have left the labor market and are entitled to long-term illness benefits.

Hunt is also considering making sharp cuts to top-up benefits. The agreement is to increase payments during the summer months in line with the consumer price index, which would yield a figure of almost eight percent.

But the Paris-based Organization for Economic Co-operation and Development predicted last week that inflation would fall below three percent by 2024.

The Chancellor’s main goal is to get people back to work. That would help keep inflation in check as labor shortages have put pressure on employers to succumb to high wage demands.

The number of working-age people classed as economically inactive rose by 63,000 in the three months to July and has risen by 411,000 since the start of Covid-19.

As of early 2023, approximately 2.6 million people or 6.1 percent of 16- to 64-year-olds were classified as economically inactive for medical reasons. Health benefits are seen as relatively accessible and generous compared to other wellness options.

The focus of the Autumn Declaration on November 22 will be on curbing spending and securing room for maneuver in public finances. The aim is to create room in the 2024 budget to reduce the country’s tax burden, which at 37 percent of national income is the highest since the 1940s.

Hunt is in a better position in terms of public finances than expected at the start of the financial year. High tax revenues from VAT and PAYE have led to an undershoot of £11.6 billion in the first five months. This gives him much more leeway than previously thought.

Hunt has not ruled out a possible change to the VAT regime for foreign visitors to Britain when he prepares the budget. His work on the issue follows a concerted campaign by high-end retailers, airports and the hospitality sector, who claim the regime is driving foreign visitors elsewhere.

The tax reforms to be outlined in November are expected to focus on further boosting business investment, which has soared since the pandemic.

According to a city economist, business investment has increased by 35 percent since 2020. Hunt wants to build on the changes he introduced earlier this year when he expanded tax breaks for capital investments to 100 percent.

The OBR, which marks the government’s budget homework, says the rising cost to taxpayers of long-term illness is the difference between ‘reducing debt by a comfortable margin’ or a rising debt burden.

It is argued that reversing the rise in health-related inactivity and poor health at work could reduce the large and growing pressure on public finances.

Within the budget, Hunt wants to make it easier for people with mental health problems to get back into work by making access to support easier.

A key part of the reforms will be to make health benefits less generous, which could push people to look for work. With inflation falling, there is an opportunity to reduce the revaluation, looking forward rather than backward.

There are still almost a million job openings across the economy. Ironically, many are in the healthcare and healthcare industries.