UK finance minister announces tax hikes and spending cuts, says country is in recession

LONDON — The British government unveiled a sweeping £55 billion ($66 billion) budget plan on Thursday as it seeks to plug a gaping hole in public finances and restore Britain’s economic credibility, even as the country teeters in recession.

Finance Minister Jeremy Hunt, in his much-awaited inaugural autumn statement, outlined around £30bn in spending cuts and £25bn in tax hikes.

The measures included a further two-year freeze on income tax thresholds and a cut in the top rate of income tax to £125,140 – measures directly opposed to the major cuts announced in the September report. catastrophic mini-budget.

“Unfunded tax cuts are as risky as unfunded spending,” Hunt told the House of Commons.

Hunt said the measures would reassure markets that the government and the Bank of England are now working “in parallel”.

“We need fiscal and monetary policies to work together,” he said. “It means the government and the Bank working closely together. It means, in particular, giving the world confidence in our ability to pay our debts.”

Sterling fell against the dollar after the announcement. It was trading at around $1.1811 as of 1:30 p.m. local time.

However, Hunt said they were needed to limit Inflation at its highest in 41 years and recover the UK’s reputation; calling the plan “the ultimate growth strategy”.

“We must continue a relentless fight to bring (inflation) down, including a firm commitment to rebuilding our public finances,” Hunt said.

Among the other measures announced were a 10 per cent rise in state pension, benefits and tax credits – in line with the September inflation figure – and a rise in the National Living Wage to £10.42 an hour for people aged 23 and over.

The dividend allowance and the annual exception for capital gains tax, meanwhile, will be reduced over the next two years, the finance minister said.

He also confirmed that the energy industry will face an expanded windfall tax of 35% from 25%. In the meantime, household support for energy bills will be reduced, with typical bills dropping from £2,500 a year to £3,000 from April 2023.

However, many tax measures are planned for the years following the general elections scheduled for 2024.

Thursday’s statement was accompanied by a series of long-awaited projections from Britain’s Independent Office for Budget Responsibility (OBR), which painted a grim economic picture for Britain.

Forecasts show the UK is now in a recession, which it expects to last “just over a year”, during which employment will fall from 3.5% to 4.9%.

Hunt said the government’s new plan ensures the downturn is less deep and unemployment is lower than previous forecasts.

It also marks a defining moment for Hunt, who was installed last month to regain UK credibility after the now infamous of its predecessor Kwasi Kwarteng mini-budget of unfunded tax cuts unleashed market chaos and emergency response.

Although the then boss of Hunt Liz Truss resigned in a short time – becoming the UK’s shortest prime minister – he was kept on by his successor Rishi Sunak in a bid to provide stability after months of political unrest.

Shadow finance minister Rachel Reeves said on Thursday the new plans would leave the UK even worse off than it was earlier this year.

“Here we are at the end of 2022, three prime ministers, four chancellors and four budgets later,” Reeves said. “And where are we? In a worse place than where we started the year.”

The UK is the only Group of Seven (G7) country not to have regained its pre-pandemic size, after suffering a decade of near-stagnant income growth.

The bank of england warned earlier this month that UK faces its longest recession since records began a century ago.

Official data released on Friday showed that the economy decreased by 0.2% in the third quarter of 2022. A second consecutive quarter of negative growth going forward would indicate that the UK is in a technical recession.