Chancellor of the Exchequer Jeremy Hunt unveiled a £55 billion ($66 billion) tax plan in his much-anticipated autumn inaugural address.
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LONDON – The U.K. government on Thursday unveiled a sweeping 55 billion pound ($66 billion) fiscal plan aimed at plugging a huge gap in public finances and restoring Britain’s economic credibility, despite that the country is in recession.
Chancellor of the Exchequer Jeremy Hunt, in his long-awaited autumn opening statement, outlined around £30bn in spending cuts and £25bn in tax rises.
The measures included a six-year freeze on income tax thresholds and a reduction in the top rate of income tax to £125,000, moves in direct opposition to the major cuts announced in September’s disastrous mini-budget .
“Unfunded tax cuts are as risky as unfunded spending,” Hunt told the House of Commons.
Mr Hunt said the measures would reassure markets where the government and the Bank of England were now working on a “backstop”.
“We need fiscal and monetary policy to work together,” he said. “This means that the government and the Bank work in step. It means, in particular, giving the world confidence in our ability to pay our debts.”
A recessionary fiscal plan
The measures will add to the financial hardships 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 the 41-year peak inflation and restore the UK’s reputation; dubbing the plan the “ultimate growth strategy.”
“We must continue a relentless fight to bring (inflation) down, including a strong commitment to rebuilding our public finances,” Hunt said.
Other measures announced included a 10% rise in the state pension, benefits and tax credits – in line with September’s inflation figure – and a rise in the National Living Wage to £10.42l time for those over 23 years old.
The Finance Minister also confirmed that the energy industry will face an expanded windfall tax of 35% from 25%.
Thursday’s statement was accompanied by a long-awaited set of projections from the UK’s independent Office for Budget Responsibility (OBR), which painted a bleak economic picture for Britain.
Hunt said projections show the UK is now in recession, but the government’s plan will ensure the recession is shallower and unemployment lower than initially predicted.
An important test for the government
The new UK strategy sets the tone for Prime Minister Rishi Sunak as he presides over an era of fiscal austerity and shrinking support for the Conservative Party.
It also marks a watershed moment for Hunt, who was installed last month to restore Britain’s credibility after predecessor Kwasi Kwarteng’s now infamous mini-budget of unfunded tax cuts sparked market chaos and emergency intervention.
Although Hunt’s then boss Liz Truss resigned shortly after, becoming the UK’s shortest-serving prime minister, her successor Rishi Sunak kept him on in a bid to ensure stability after months of political unrest.
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 that the economy contracted by 0.2% in the third quarter of 2022. A second consecutive quarter of negative growth would indicate that the UK is in a technical recession.
The UK is now the only Group of Seven (G7) country yet to return to its pre-pandemic size, after suffering a decade of almost stagnant income growth.