UK Chancellor Hunt introduces new budget plan with more tax hikes and tighter public spending
British finance minister Jeremy Hunt announced tough budget plan with a series of tax increases and tighter public spending, arguing decision by need to restore country’s fiscal reputation, which was blown by the measures brought by former prime minister Liz Truss.
In his speech to the parliament, Hunt said that the economy was already in recession and expected to contract next year but there was no way to avoid painful fiscal measures to ensure Britain could build on the recent restoration of calm in financial markets.
He added that the latest inflation figures show that Britain must continue a persistent fight to bring it down, including an important commitment to rebuild the public finances.
Chancellor Hunt introduced changes to tax rules that will mean more people pay basic income tax, a lower threshold for paying the top rate of income tax, and a cut in tax-free allowances for earnings from dividends.
He also decided to freeze a threshold at which employers must start to pay social security contributions, until 2028, which will push companies to pay more.
A tax on the profits of energy companies would be increased to 35% from 25% from January 1 until 2028, and a new temporary 45% tax would be imposed on electricity generators, to raise a total of 14 billion pounds next year, with tightening introduced against the backdrop of a weak outlook for the economy.
Britain’s gross domestic product is now expected to contract by 1.4% next year compared with a projection for growth of 1.8% in the previous outlook published in March, as Britain’s economy since then has come under increased pressure from high inflation, currently above 11%, a slowing global economy and severe financial market volatility during Truss’s brief term as prime minister.
Hunt pointed to the latest estimations which show GDP would grow by 1.3% in 2024 and by 2.6% in 2025, compared with previous forecasts for growth of 2.1% and 1.8% respectively, while inflation at 9.1% in 2022, up from its March forecast of 7.4%, and at 7.4% next year, up from a previously forecast 4.0%.
Chancellor Hunt and Prime Minister Sunak have said they will restore investor confidence in Britain after Truss’s failed experiment with unfunded tax cuts, after her measures sent the pound to an all-time low against the U.S. dollar, threatened chaos in the housing market and forced the Bank of England to intervene to prop up the bond markets, prompting her to quit after just 50 days in Downing Street
Britain is the only Group of Seven economy yet to recover its pre-pandemic size, having previously suffered a decade of near-stagnant income growth.
On the other side, critics have warned against a return to the kind of tight spending controls pursued by the ruling Conservative Party for much of the past 12 years, saying it would hurt already stretched public services and the lives of millions of households, deepening the expected recession in the process.