British finance minister announces tax hikes and spending cuts, saying the country is in recession

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

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LONDON – The British government on Thursday unveiled a £55 billion ($66 billion) fiscal plan as it seeks to plug a gaping hole in public finances and restore the credibility of Britain’s economy, even as the country heads into recession.

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

The measures include a six-year freeze on the income tax threshold and lowering the top rate of income tax to £125,140 – a move directly opposite to the major cuts called for in September. catastrophic mini budget.

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

Hunt said the measures would reassure the market that the government and the Bank of England are now working in “lockstep.”

“We need fiscal and monetary policy to work together,” he said. “It means the government and the Bank are working in lockstep. It means, in particular, giving the world confidence in our ability to pay our debts.”

Sterling fell against the dollar after the announcement. It was trading around $1.1811 by 1:30 pm local time.

Recession fiscal plan

The measures will increase financial hardship for millions of Britons as they face the country’s worst cost-of-living crisis in decades and its longest recession.

However, Hunt said they had to limit it Inflation 41-year-high and restore the reputation of England; dubbing the plan the “ultimate growth strategy”.

We must continue our relentless fight to reduce (inflation), including a strong commitment to rebuilding our public finances,” Hunt said.

Among the announced measures the 10% increase in state pensions, benefits and tax credits – in line with September’s inflation figures – and an increase in the National Living Wage to £10.42 an hour for those aged 23 and above.

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

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

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.

Forecasts show that the UK is currently in recession, which is expected to last “only a year”, and when employment will rise from 3.5% to 4.9%.

Hunt said the government’s new plan ensured the decline was shallower and unemployment lower than previously forecast.

A major test for the government

Britain’s strategy sets the tone for prime minister Rishi Sunak, as he ushers in a new era of fiscal austerity and cuts support for the Conservative Party.

It also marked a defining moment for Hunt, which it was posted last month to regain the credibility of England after the predecessor Kwasi Kwarteng’s now-infamous mini budget of unfunded tax cuts released market turmoil and emergency intervention.

Although Hunt was the boss Liz Truss resigned in short order – becoming Britain’s shortest-serving prime minister – he was retained by his successor Rishi Sunak in a bid to ensure stability after a few months political turmoil.

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Shadow finance minister Rachel Reeves said Thursday that the new plan would leave the UK worse off than 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 UK is the only Group of Seven (G7) country to have returned to its pre-pandemic size, having experienced a decade of near-term income growth.

The Bank of England warned earlier this month that Britain is currently facing its longest recession since the first records last century.

Official data released Friday showed that the economy down by 0.2% in the third quarter of 2022. A second consecutive quarter of negative growth in the future would indicate that the UK is in a technical recession.

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