June 22, 2024


The Business & Finance guru

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

Finance Minister Jeremy Hunt, in his hotly anticipated inaugural Autumn Statement, unveiled a sweeping £55 billion ($66 billion) fiscal plan.

Anadolu Agency | Anadolu Agency | Getty Images

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

Finance Minister Jeremy Hunt, in his hotly anticipated inaugural Autumn Statement, outlined around £30 billion in spending cuts and £25 billion in tax hikes.

The measures included an extra two-year freeze on income tax thresholds and a lowering of the top rate of income tax to £125,140 — moves directly opposed to the major cuts touted in September’s catastrophic mini-budget.

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“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 “lockstep.”

“We need 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.”

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

A recessionary fiscal plan

The U.K.’s Autumn Statement sets the tone for Prime Minister Rishi Sunak’s premiership, as he presides over a new era of fiscal austerity.

Stefan Rousseau | Afp | Getty Images

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

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

Still, many of the fiscal measures are scheduled for the years after an expected 2024 general election.

Thursday’s statement was accompanied by a long-awaited set of projections from the U.K.’s independent Office for Budget Responsibility (OBR), which painted a gloomy economic picture for Britain.

The forecasts show that the U.K. is now in a recession, which it expects to last “just over a year,” and during which employment will rise from 3.5% to 4.9%.

Hunt said the government’s new plan ensures that the downturn is shallower and unemployment lower than previously forecast.

Major test for the government

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Shadow finance minister Rachel Reeves said Thursday that the new plans will leave the U.K. still 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 we started the year.”

The U.K. is the only Group of Seven (G7) country yet to return to its pre-pandemic size, having suffered a decade of near-stagnant income growth.

The Bank of England warned earlier this month that the U.K. is now facing its longest recession since records began a century ago.

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