Hunt announces £55bn in tax hikes and emergency budget spending cuts as Bank of England forecast recession could last two years

Millions of Britons face higher taxes and steeper energy bills after the government on Thursday announced an emergency budget aimed at restoring the country’s economic credibility and bolstering its ailing public finances.

Treasury chief Jeremy Hunt pledged to protect the most vulnerable, including pensioners and those on low incomes, and increase funding for essential public services like health and education, even as he imposed £55 billion in tax increases and spending cuts.

Hunt acknowledged that he is delivering “a significant tax hike” with measures that include higher taxes on top earners and levies on some companies.

At the same time, Hunt pledged to spend billions of pounds to help consumers pay soaring energy bills, increase welfare payments and pensions in line with inflation, and keep investment in energy and infrastructure projects going.

Just three weeks after taking office, Prime Minister Rishi Sunak’s government faces the challenge of balancing the country’s budget while helping millions of people hit by a cost-of-living crisis as Russia’s war in Ukraine drives up energy prices and economic growth slows down.

The emergency budget statement aimed to restore the government’s financial and political credibility after former Prime Minister Liz Truss announced £45 billion in unfunded tax cuts that torpedoed investor confidence, sending the pound to record lows against the US dollar and triggered emergency central bank intervention. Truss was forced to resign six weeks after taking office.

Hunt said Britain was facing “unprecedented global headwinds” and unveiled the package, which he said would help tame inflation and curb public debt while strengthening the economy.

“It’s a balanced stability plan, a growth plan and a public services plan,” he told the House of Commons. “It shows that you don’t have to choose between a strong economy and good public services.”

Faced with pressure to tap into huge profits from oil and gas companies to fund support for struggling Britons, the government increased its windfall tax from 25 percent to 35 percent from January 2024 to March 2028.

Power generators will also have to pay a new temporary levy of 45 percent. Hunt said the combined taxes would raise £14billion next year.

Hunt pledged to protect public spending in key areas like health and education, as well as investment in energy and infrastructure projects. But he delayed important decisions, such as whether to stick to the previous government’s promise to increase defense spending to 3 percent of GDP.

Retirees and welfare recipients will increase their payments in line with inflation, while millions of minimum-wage workers will receive a 9.7 percent increase in April, Hunt said.

However, millions of households face higher energy bills as a price cap rises from £2,500 a year for the average household to £3,000 in April.

Opposition Labor Party economics spokeswoman Rachel Reeves dismissed the budget as “more taxes, more inflation, higher mortgages”.

Hunt indicated pain in front of him. He said the independent Office for Fiscal Responsibility said inflation will reach 9.1 percent this year and 7.4 percent next year, but will fall sharply from mid-2023. He said the Bureau believed the UK was already in recession.

According to official statistics, the economy contracted 0.2 percent between July and September, and the Bank of England has predicted a recession that could last up to two years.

Two-quarters of the economic contraction is a long-established informal definition of recession, also used by the UK. The country doesn’t have an independent body to declare recessions like the United States and Europe, which use more detailed data to make decisions such as rising unemployment and job losses. In all of these countries, the labor market remains strong.

Against this backdrop, the government will struggle to meet all competing demands, said Torsten Bell, chief executive officer of the Resolution Foundation, a think tank trying to improve living standards for low- and middle-income people.

“The uncomfortable reality is that unless global energy prices reverse, we will remain poorer as a country than we had hoped,” Bell wrote this week.

The government faces demands from nurses, police officers, border guards and civil servants, all clamoring for wage increases after inflation accelerated to a 41-year high of 11.1 percent in October. Welfare recipients and retirees are also demanding higher payments, and low-income families are demanding expansion of the free school lunch program.

But resources are limited and Sunak faces a deficit of at least £40bn.

The budget comes against a bleak backdrop as the war in Ukraine, the aftershocks of the COVID-19 pandemic and the economic strains of Britain’s exit from the European Union weigh on the UK economy.

Hunt and Sunak have reversed most of Truss’ policies while pledging that the government will pay its bills and begin to pay off the debt that has built up over the past 15 years.

Britain’s national debt rose from less than 36 percent in 2007 to almost 83 percent of GDP in 2017 as the government bailed out banks and struggled to prop up the economy. A decade of budget cuts had begun to ease the strain as the Covid-19 pandemic and war in Ukraine drove debt to 98 percent of gross domestic product. That’s the highest level since 1963, when Britain was still recovering from World War II.

But some economists warn against moving too quickly to reduce government debt while rising food, energy and housing costs will wipe out the savings of a fifth of UK households.

Among those most in need of help is Magdelena Prosenic, a single mother who described her struggles feeding her two young children as she waited in line at a south London community kitchen on Wednesday.

For £5 people can buy 20 items of fresh fruit, vegetables and essential items like canned beans and pasta. But items like eggs, which have skyrocketed in price, are in high demand and there are only enough for those who come early.

“We’re on welfare, but it’s difficult to look after two children without help,” Prosenic said, hoping to get food for her baby and 3-year-old. “The children need fruit, they need diapers and baby food.”

Anna Sjovorr-Packham, who runs the pantry, said the number of families buying groceries from them is “slowly but steadily increasing”. And the cold winter months come when families have to spend more on heating.

“I think there was once the idea that people who have access to food supplies might need the service as a last resort — there can be a stigma about the type of person,” she said. “But now the pantries are definitely being used by everyone.”

https://www.independent.ie/world-news/europe/britain/hunt-announces-55bn-in-tax-increases-and-spending-cuts-in-emergency-budget-as-bank-of-england-predicts-a-recession-that-could-last-two-years-42152146.html Hunt announces £55bn in tax hikes and emergency budget spending cuts as Bank of England forecast recession could last two years

Fry Electronics Team

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