Tough budget plan awaits the UK; tax hikes, spending cuts: Hunt
British Finance Minister Jeremy Hunt announces that the country is in recession, vowing a series of tax increases and tighter public spending in a tough budget plan.
The United Kingdom's government unveiled a £55 billion ($66 billion) fiscal plan on Thursday, aiming to plug a gaping hole in the public finances and restore Britain's economic credibility as the country teeters on recession.
In his much-anticipated first Autumn statement, Finance Minister Jeremy Hunt proposed around £30 billion in spending cuts and £25 billion in tax increases.
The measures include a six-year freeze on income tax thresholds and lowering the top rate of income tax to £125,000 — moves directly opposed to the major cuts touted in September’s catastrophic mini-budget. “Unfunded tax cuts are as risky as unfunded spending,” Hunt told the House of Commons.
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The measures, according to Hunt, will reassure markets that the government and the Bank of England are now working in "lockstep".
“We need a fiscal and monetary policy to work together,” he said. “That means the government and the Bank working in lockstep. It means, in particular, giving the world confidence in our ability to pay our debts.”
A recessionary fiscal plan
Millions of Britons will face increased financial hardship as they face the country's worst cost-of-living crisis in decades and its longest-ever recession.
However, Hunt stated that they were necessary to limit 41-year-high inflation and restore the United Kingdom's reputation, referring to the plan as the "ultimate growth strategy." ″We must continue a relentless fight to bring (inflation) down, including a rock-solid commitment to rebuild our public finances,” Hunt said.
Other measures announced included a 10% increase in the state pension, benefits, and tax credits in line with September's inflation figure, as well as an increase in the National Living Wage from the current level of £9.50 an hour for those aged 23 and up.
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The Finance Minister confirmed that the energy industry will be targeted with an expanded windfall tax of 35% up from 25%.
The statement on Thursday was accompanied by a long-awaited set of projections from the United Kingdom's independent Office for Budget Responsibility (OBR), which painted a bleak economic picture for the country.
The UK is now in recession, but the government's plan will make the downturn shallower and unemployment lower than previously predicted, according to Hunt.
Testing the government
The United Kingdom's new strategy sets the tone for Prime Minister Rishi Sunak's tenure, as he presides over a period of fiscal austerity and dwindling Conservative Party support.
It is also a watershed moment for Hunt, who was appointed last month to restore the United Kingdom's credibility after predecessor Kwasi Kwarteng's now-infamous mini-budget of unfunded tax cuts caused market chaos and required emergency intervention.
Though Hunt's then-boss Liz Truss resigned quickly, becoming the UK's shortest-serving PM, successor Rishi Sunak kept him on in a bid to ensure stability after months of political turmoil.
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Earlier this month, the Bank of England issued a warning that the UK is experiencing the longest recession since records began over a century ago.
According to official data released on Friday, the economy contracted by 0.2% in the third quarter of 2022. The second quarter of negative growth in the future would indicate that the UK is experiencing a technical downturn.
At the end of a decade of near-stagnant income growth, the United Kingdom has become the only Group of Seven (G7) country that has yet to return to pre-pandemic size.