December 2, 2022

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Britain's finance minister announces tax increases and spending cuts, and says the country is in recession

Britain’s finance minister announces tax increases and spending cuts, and says the country is in recession

In his highly anticipated opening autumn statement, Chancellor of the Exchequer Jeremy Hunt will unveil a comprehensive £55 billion ($66 billion) fiscal plan.

Anadolu Agency | Anadolu Agency | Getty Images

On Thursday, the British government unveiled a comprehensive £55 billion ($66 billion) fiscal plan as it seeks to close a huge gap in public finances and restore Britain’s economic credibility, even as the country teeters into recession.

Chancellor of the Exchequer Jeremy Hunt, in his hotly anticipated opening autumn statement, outlined around £30 billion in spending cuts and £25 billion in tax increases.

The measures included a six-year freeze on income tax thresholds and a reduction of the top rate of income tax to £125,140 – steps in direct opposition to major cuts touted in September. Disastrous micro budget.

“Unfunded tax cuts have the same risks as unfunded spending,” Hunt told the Commons.

Hunt said the measures would reassure markets that the government and the Bank of England were now working “steadily”.

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

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

Recession financial plan

The measures will add to the financial hardship of millions of Britons as they grapple with the country’s worst cost-of-living crisis in decades and its longest-ever recession.

However, Hunt said they were necessary to reduce High inflation for 41 years restore the UK’s reputation; Call it the Ultimate Growth Strategy.

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

Among the other measures announced It was a 10% increase in the state pension, benefits and tax credits – in line with September’s inflation figure – and an increase in the national living wage to £10.42 an hour for those aged 23 and over.

Meanwhile, the finance minister said the dividend allocation and the annual capital gains tax exemption would be reduced over the next two years.

He also confirmed that the energy industry would face an expanded dividend tax of 35% from 25%.

Thursday’s statement was accompanied by a long-awaited set of forecasts from Britain’s independent Office for Budget Responsibility (OBR), which painted a bleak economic picture for Britain.

Forecasts show that the UK is now in recession, expected to last “a little over a year”, during which employment will rise from 3.5% to 4.9%.

Hunt said the government’s new plan ensures the downturn is slower and unemployment is lower than previously expected.

A key test for the government

UK strategy sets the tone for Prime Minister Rishi Sunak’s premiership, as he presides over a new era of fiscal austerity and waning Conservative Party support.

It also marks a defining moment for Hunt, who was installed last month to restore UK credibility after his predecessor, the now infamous Kwasi Quarting Mini budget for unfunded tax cuts unleashed market chaos And the emergency intervention.

Although Hunt was president at the time Liz Truss quit In a short time – he became the UK’s shortest-serving prime minister – Rishi Sunak kept him in check to try to ensure stability after months of turmoil political problems.

Shadow chancellor Rachel Reeves said Thursday that the new plans will leave the UK still worse than it was earlier this year.

“Here we are at the end of 2022, three prime ministers, four advisers 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 G7 country that has not yet returned to its pre-pandemic size, after suffering a decade of near-stagnant income growth.

The Bank of England warned earlier this month that The UK is now facing its longest recession Since records began a century ago.

Official data released on Friday showed that the economy 0.2% shrinkage In the third quarter of 2022. The second consecutive quarter of negative growth ahead suggests that the UK is in a technical recession.

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