Finance Minister Jeremy Hunt, in his much-awaited inaugural autumn statement, unveiled a sweeping £55bn ($66bn) fiscal plan.
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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 six-year freeze on income tax thresholds and a drop in the top rate of income tax to £125,000 – measures directly opposed to the major cuts announced in September’s 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.”
The pound fell against the dollar after the announcement. It was trading at around $1.1811 as of 1:30 p.m. local time.
A recessive budget plan
The measures will increase the financial hardship of millions of Britons as they face the country’s worst cost of living crisis in decades and its longest recession.
However, Hunt said they were needed to limit 41-year inflation and restore 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.
Other measures announced included a 10 per cent increase in state pension, benefits and tax credits – in line with the September inflation figure – and an increase in the National Living Wage to £10.42 from per 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%.
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.
A major test for the government
The UK strategy is setting the tone for Prime Minister Rishi Sunak’s premiership as he presides over a new era of fiscal austerity and dwindling Conservative Party support.
It also marks a watershed moment for Hunt, who was installed last month to regain UK credibility after predecessor Kwasi Kwarteng’s now infamous mini-budget of unfunded tax cuts sparked market chaos. and emergency response.
Although then-Hunt boss 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 the UK now faces its longest recession since records began a century ago.
Official data released on Friday showed the economy shrank by 0.2% in the third quarter of 2022. A second consecutive quarter of negative growth going forward would indicate the UK is in a technical recession.
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