The Liz Truss curse has finally been lifted

Much of that was intentional. The mini-Budget implosion quickly became proof for the high-tax advocates, the ever-spending brigade and wealth tax-backing international organisations that their worldview was right.

Never mind that the £45bn worth of tax cuts paled in comparison to the £100bn Truss had attributed to her Energy Price Guarantee (which at the time was estimated to be the biggest single handout in British history). It was the tax cuts that did it – sending borrowing costs surging and, in the end, cutting short the Truss premiership.

This framing could have gone on for years: opt for tax cuts, and you risk higher borrowing costs, higher interest rates and a weaker economy. It’s a framing Hunt broke this week.

Rather than opt for more tax hikes in another mea culpa to the international markets – in a bid to prove the UK is serious about the state of its public finances – the Chancellor pivoted towards a new narrative. “Our choice is not big government, high spending and high tax because we know that leads to less growth, not more,” he told the House. “Instead we reduce debt, cut taxes and reward work.”

What followed was the biggest tax cut package that the Tories have offered up since Margaret Thatcher was in 10 Downing Street. The fallout? Virtually none. The pound didn’t plummet. Borrowing costs have stayed broadly the same. The apocalypse has been kept at bay, despite the Chancellor using almost all of his £30bn fiscal headroom to go for tax cuts.

This reaction – or lack of reaction – is perhaps the most important outcome of this week’s Autumn Statement. It may even come to define Hunt’s time in the Treasury: not one particular tax cut, but his ability to reset the narrative that tax cuts lead to economic ruin.

Of course, there are reasons markets reacted differently, and they include some difficult trade-offs, ones which ministers might prefer went unaddressed. Hunt’s tax cuts in one area have been balanced with stealth rises in others. The income raised from the six-year freeze on tax thresholds is four times higher than the cost of cutting NI: £44bn compared to £10bn by the end of the Office for Budget Responsibility’s forecast.

The implications of this fiscal drag are huge, and (despite Hunt’s tax cuts) have kept the overall tax burden on course to reach a post-war record. The OBR calculates that by 2028-29 these freezes will mean “nearly four million additional workers paying income tax, three million more moved to the higher rate and 400,000 more paying the additional rate”.

Moreover, the Chancellor made the decision to direct the cash towards making the tax cuts add up, rather than focus on more public spending within government departments, leading to what the OBR estimates will be a £19bn reduction in real spending power compared to the March forecast.

On this point, the Government seems quietly optimistic that productivity improvements can fill the gap, as Hunt suggested only a month ago at Conservative Party Conference that his goal was to improve public sector productivity by half a percentage point – equating to billions of pounds saved.

But these trade-offs that weigh on the Tories will also be weighing heavily on the Labour party, which if it comes into power next year will now have to be far more decisive about prioritising tax cuts or spending.

It has been difficult this year to draw a meaningful distinction between the two major parties on the economy, with Labour increasingly comfortable repeating Tory talking points about fiscal prudence and spending restraint (if anything, they’ve tried to claim these points as their own, after last autumn’s fiasco).

Now, however, Labour is not just tasked with proving they can manage the public finances. They will be under growing pressure to point out where they might cut tax, too. It feels a long way from this time last year, when the messaging from almost every party was that tax cuts were simply not feasible, and wouldn’t be any time soon.

What’s more, depending on events in the next few months, Hunt may well have teed the Government up for more changes in the Spring Budget.

Even Hunt was saying just a few months ago that tax cuts would be “virtually impossible” on this side of the year. But revised figures gave him the opportunity to act – and he did.

Hunt has put a reduction in taxes back on the agenda, and no one is calling him or the party reckless Trussites for doing so. That alone can be chalked up as a big win.