Where did Jeremy Hunt’s £55bn black hole come from?

Jeremy Hunt will raise taxes, cut public spending and rein in energy support to fill what the Treasury has called an “eye-watering” black hole in the nation’s finances.

In his Autumn Statement this morning, the chancellor said the UK needed to give “the world confidence in our ability to pay our debts” as he laid out plans to “deliver a consolidation of £55bn”.

However, some economists have questioned the Treasury’s calculations because they are created by arbitrary fiscal rules set by the government.

The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

What did the papers say?

The black hole is “the gap, the space, between future tax revenues and public spending, which, if big enough to bust the fiscal rules, has to be tackled”, wrote David Smith, economics editor of The Sunday Times.

However, there was “no hint” of this “fiscal mess” when Rishi Sunak campaigned for the Tory leadership over the summer, he added. The former chancellor promised further tax cuts because, “on the face of it, the public finances were in good shape”.

The Office for Budget Responsibility (OBR) had warned in March that the chancellor’s fiscal headroom “could be wiped out by relatively small changes in the economic outlook”. Since then, a drop in GDP and surges in interest rates and inflation have caused a “shift in the OBR’s assessment of the public finances”, wrote Smith.

By July, the £30bn of headroom had been lost because of higher inflation, higher interest rates and slowing economic growth. Some have pointed the finger of blame at Liz Truss and her controversial mini-budget, but although she has “undoubtedly made a bad situation worse” she is “not to blame”, wrote Joel Hills, business and economics editor at ITV News.

The problem, he argued, is that the UK has been “hit by a series of economic shocks: Brexit, the pandemic and the war in Ukraine”, while “inflation is rampant, interest rates are rising and the labour market is tight”.

Meanwhile, “left-of-centre economists” have questioned the very idea of a “measurable ‘black hole’ in the public finances”, said The Guardian. It argued that “its existence is only created by whatever fiscal rules the government has set itself” and that estimates of its size are “highly sensitive” to economic projections.

In a paper he co-authored for the Progressive Economy Forum, the economist Jo Michell spoke of the “dangerous fiction” of a fiscal black hole at a time when there are a number of “turning point signals” that mean it makes more sense to wait before introducing tax and spending measures.

What next?

Speaking to the Daily Mail at the weekend, Hunt admitted there is “some choice” over the fiscal rules a government chooses to follow and “also uncertainty in any projections”. However, he warned that if the UK failed to show the world that “we are going to pay our way”, there will be “higher interest rates, higher inflation, more instability and more worries for families and businesses”.

His Autumn Statement is “seen as crucial for restoring economic stability and credibility” after former chancellor Kwasi Kwarteng’s mini-budget in September “sparked market turmoil”, said the Nick Eardley, the BBC’s chief political correspondent.

Sunak “wants to be the premier fiscal hawk in Britain”, wrote Sam Coates, deputy political editor of Sky News, “unafraid to take difficult decisions and cut the state”. But, warned Coates, “this comes at a political, as well as an actual, cost”.