Chancellor of the Exchequer Jeremy Hunt, in a much-anticipated autumn budget statement, unveiled a £55 billion ($66 billion) austerity budget plan.
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LONDON – The UK government on Thursday unveiled a budget plan of 55 billion pounds ($66 billion) as it seeks to plug the gap in the public budget and restore British economic confidence, even as the country climbs into recession.
Chancellor of the Exchequer Jeremy Hunt, in his much-anticipated Autumn Budget statement, outlined £30 billion in spending cuts and £25 billion in tax increases.
The measures include a six-year freeze on the income tax threshold and a reduction in the rate of income tax to £125,140 – a move contrary to the big cuts proposed in September’s budget.
“Unfunded tax cuts are as dangerous as unfunded spending,” Hunt told the House of Commons.
Hunt said that these measures will reassure the market that the government and the Bank of England are currently working on “lockdown.”
He said, “We need fiscal and monetary policies to work together. “That means that the government and the Bank are working in lockstep. It means, in particular, to give the world confidence that we can pay our debts.”
Sterling fell against the dollar following the announcement. It was trading at around $1.1811 at 1:30 pm local time.
Recessionary budget planning
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 were necessary to prevent 41 high prices and regain the UK title; keeping the plan “maximum growth plan.”
““We will continue the relentless fight to bring (prices) down, including a strong commitment to rebuild our public finances,” Hunt said.
Among the other measures announced were a 10% increase in the state pension, 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 more.
The Finance Minister said that dividends and annual dividends will be deducted from income tax, meanwhile, in the next two years.
It also revealed that the energy industry will face an expanded gas tax of 35% from 25%. Meanwhile, household support for energy bills will be reduced, with typical bills rising from £2,500 a year to £3,000 from April 2023.
Thursday’s announcement was part of a long-awaited forecast from the UK’s independent Office for Budgeting (OBR), which painted a bleak economic picture for Britain.
These forecasts show that the UK is currently in a recession, which it expects to last “just over a year,” and that over time employment will rise from 3.5% to 4.9%. .
Hunt said the government’s new plans ensure the cuts are smaller and unemployment lower than previously predicted.
A big test for the government
The UK plan sets the tone for Prime Minister Rishi Sunak, as he presides over a new era of budget deficits and dwindling Conservative Party support.
It’s also a defining moment for Hunt, who was installed last month to restore UK confidence after Kwasi Kwarteng’s now-notorious budget cuts of tax cuts, economic shocks and emergency aid .
Although Hunt’s boss Liz Truss resigned soon after – becoming the UK’s shortest-serving prime minister – she was replaced by her successor Rishi Sunak in a bid to ensure stability following months of political turmoil.
Shadow finance minister Rachel Reeves said on Thursday that the new plan would leave the UK worse off than it was earlier this year.
“Here we are at the end of 2022, three prime ministers, four governors and four budgets to go,” Reeves said. “Where will we find ourselves? In a worse place than we started the year.”
The UK is the only group of seven countries (G7) that has not returned to its pre-pandemic levels, suffering a decade of stagnant economic growth.
The Bank of England warned earlier this month that the UK is facing its worst recession since records began a century ago.
Government data released on Friday showed that the economy shrank by 0.2% in the third quarter of 2022. A second quarter of continued negative growth would indicate that the UK is in a technical recession.