Predictions: what might be in the chancellor’s statement on 31 October?

The new chancellor Jeremy Hunt is gearing up to reveal the rest of his “Medium-Term Fiscal Plan” in 12 days’ time, after announcing a series of bombshell U-turns on Monday.

Speaking in the House of Commons yesterday, Hunt warned that "decisions of eye-watering difficulty" on tax and spending will need to be taken ahead of the economic statement on 31 October, in order to reduce the UK’s debt burden and stabilise market turmoil. 

He has already announced that the Energy Price Guarantee will only last until April 2023 - rather than October 2024 - while plans to cut a penny off the basic rate of income tax have been dropped “indefinitely”.

The chancellor said further changes will be “through the prism of what matters most to the most vulnerable”. 

Speculation is growing that the state pension triple lock could be scrapped on 31 October, while changes to benefits, tax rates and even a windfall tax on energy companies could be on the cards too.

State pension triple lock could be scrapped

After delivering his first statement in the Commons as chancellor, Hunt was asked by Labour MP Emma Hardy if he could commit to the state pension rising in line with inflation in April. The state pension triple lock - a guarantee that the payment will rise by wage growth, inflation or 2.5%, whichever is highest - is currently suspended for one year, and set to be restored in April 2023.

Last month, Hunt’s predecessor Kwasi Kwarteng said he and the Prime Minister were “absolutely committed” to the triple lock.

However, the new chancellor failed to guarantee the government would maintain the triple lock, saying: “I’m very aware of how many vulnerable pensioners there are and the importance of the triple lock but, as I said earlier, I’m not making any commitments on any individual policy areas, but every decision we take will be taken through the prism of what matters most to the most vulnerable.”

In April 2022, pensioners received a 3.1% annual increase. If the triple lock was restored, it would potentially mean the state pension rising by 10% next April, as inflation is running much higher than wage growth. 

According to the investment platform AJ Bell, scrapping the triple lock and instead up-rating the payout by wage growth (5.5%) would see pensioners lose out on more than £430 a year. 

Tom Selby, head of retirement policy at AJ Bell, comments: “The state pension triple lock has proved a hugely divisive policy, lauded by those who argue it provides much-needed protection to retirees and criticised by others who warn it exacerbates intergenerational unfairness.

"However, in the midst of a brutal cost-of-living crisis, one thing is absolutely clear - it is extremely valuable to those in receipt of the state pension.”

While scrapping the triple lock for a second year in a row would be unpopular with many voters, it would net the Treasury a huge amount of cash. 

"Office for Budget Responsibility estimates suggest every 1 percentage point increase in the value of the state pension costs the Treasury somewhere in the region of £1 billion. 

“By that measure, moving from an inflation link to an earnings link would save the chancellor £4-£5 billion,” notes Selby.

Benefit increases could be reduced

The chancellor also refused to say whether benefits would rise in line with inflation, after a question from Labour former shadow chancellor John McDonnell.

He said he would not make any “firm commitments”, adding: “But I hope he is reassured that I have been very clear about the values through which we will take those decisions.”

Benefit payments usually rise each year in April, based on how much prices are rising in the previous September.

Liz Truss had previously failed to commit to increasing benefits such as Universal Credit in line with inflation, and was considering raising payments based on wage growth.

She was expected to make a final decision by the end of November - however, any announcement could now be made on 31 October instead. 

Sarah Coles, senior personal finance analyst at the investment platform Hargreaves Lansdown, said it was horrible “that so many people whose finances are on a knife edge have to wait to hear their fate like this.”

She added: “When you’re relying on benefits to make ends meet, life is uncertain enough. Given those benefits were frozen for years, life is hard enough.”

Pension tax relief could come under the spotlight

Hunt will be looking for other ways to cut spending, and one particularly expensive government bill is the billions it spends on pension tax relief every year. Tax relief is essentially free cash from the government, and is paid on top of a saver’s pension contribution based on their income tax band.  

Nimesh Shah, chief executive of the accountancy firm Blick Rothenberg, told The Money Edit: “Pensions tax relief will now be a renewed target, and Jeremy Hunt may be the chancellor to limit relief to the basic rate - this would be incredibly bold and hurt the traditional Conservative voter.”

A new windfall tax on energy companies could be introduced

Truss has repeatedly ruled out a further windfall tax on energy companies - a favourite policy of the Labour party, which it says would help people with their gas and electricity bills.

However, at a time when U-turns seem to be the order of the day for the government, further windfall taxes on energy company profits could be introduced. 

Speaking in the House of Commons yesterday, Hunt told MPs he was "not against the principle".