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

In his much-anticipated inaugural Autumn Statement, Finance Minister Jeremy Hunt presented a sweeping £55 billion ($66 billion) fiscal plan.

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LONDON – The UK government unveiled a 55 billion pound ($66 billion) fiscal plan on Thursday as it seeks to close a gap in public finances and restore Britain’s economic credibility despite the country’s recession.

In his much-anticipated inaugural Autumn Statement, Finance Minister Jeremy Hunt outlined around £30bn of spending cuts and £25bn of tax rises.

The measures include a further two-year freeze on income tax thresholds and lowering the top rate of income tax to £125,140 – measures in direct contrast to the major cuts announced in September’s disastrous mini-budget.

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

Hunt said the measures would reassure markets that the government and the Bank of England were now operating in “lockdown”.

He said we need a fiscal and monetary policy to work together. “This means that the government and the bank are working under lock and key. This means giving the world our confidence to pay off our debt, especially.”

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Sterling The dollar fell following the announcement. It was trading at $1.1811 as of 1:30pm local time.

Recession budget planning

The measures will add to financial hardship for millions of Britons as they face the country’s worst cost-of-living crisis in decades and a prolonged recession.

However, Hunt said they were necessary to limit 41-year high inflation and restore the UK’s reputation; Naming the plan “Ultimate Growth Strategy”.

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

Other measures announced include a 10% rise in state pensions, benefits and tax credits – linked to inflation in September – and an increase in the National Living Wage to £10.42 for those aged 23 and over.

The finance minister said that the dividend allowance and the annual difference to capital gains tax will be reduced in the next two years.

He also confirmed that the energy industry expects a 35 percent wind reduction tax of more than 25 percent. Meanwhile, household support for energy bills will be cut, with typical bills rising from £2,500 to £3,000 a year from April 2023.

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Thursday’s announcement was accompanied by long-awaited forecasts from the UK’s independent Office for Budget Responsibility (OBR), which painted a bleak economic picture for Britain.

The forecasts show that the UK is currently in a recession, which is expected to last for “more than a year”, during which employment will increase from 3.5% to 4.9%.

Hunt said the government’s new plan would confirm the recession would be shallower and unemployment lower than previously predicted.

A big challenge for the government

The UK strategy sets the tone for Prime Minister Rishi Sunak as he presides over a new era of austerity and dwindling Conservative Party support.

It’s also a critical moment for Hunt, who last month was pressed to regain UK credibility after his predecessor Quasi Quarantine, now infamous for his small-budget unfunded tax cuts, market chaos and emergency intervention.

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Although Hunt’s current boss, Liz Truss, resigned shortly after – becoming the UK’s shortest-serving prime minister – he was retained by his successor, Rishi Sunak, to stabilize months of political turmoil.

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Shadow finance minister Rachel Reeves said on Thursday that the new plans would leave the UK 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 do we find ourselves? In a worse place than where we started the year.”

The UK is the only Group of Seven (G7) country that has not yet returned to pre-pandemic levels, with income growth stagnating for almost a decade.

The Bank of England warned earlier this month that the UK is facing 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. The move to a second consecutive quarter of negative growth suggests the UK is technically in recession.

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