Britain is in recession – Tax increases and government spending cuts announced by the Minister. Finance

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According to a related report, the standard of living of Britons will fall by 7% in the next two years – the biggest fall in living standards in the country since the mid-1950s

London: Thanasis Gavos

Tax rises and government spending cuts totaling £55 billion have been announced by UK Chancellor of the Exchequer Jeremy Hunt as he presents the much-anticipated interim budget from the floor of the House of Commons.

Mr Hunt also shared the official assessment by the independent Office for Budget Responsibility (OBR) that the UK economy is now in recession which will last for one year.

The OBR has revised down its forecast for the growth rate of the UK economy over the next two years, with GDP shrinking by 1.4% in the 2023-2024 financial year. However, from 2024 onwards a gradual increase in GDP is forecast, reaching 2.7% in 2027.

As stated in the relevant report, British living standards will fall by 7% over the next two years erasing eight years of growth. It will be the biggest drop in living standards in the country since the mid-1950s.

Mr Hunt described the interim budget as a plan that addresses the government’s three key priorities, namely “stability, growth and strong public services”. As he said, he achieves this by gradually reducing inflation, which last month stood at 11.1%. Mr Hunt placed the main blame for high inflation on the pandemic and the energy crisis caused by the war in Ukraine.

As to tax measures stand out the reduction of the threshold of annual income from which someone will be subject to the highest tax rate of 45% (from 150,000 to 125,140 pounds) and the increase of tax on the surplus profits of energy companies from 25% to 35%, with effect until March of 2028. A temporary tax of 45% on the surplus profits of electricity producers is also introduced.

The remaining tax increases result from the freeze until 2028 of tax-free thresholds and tax rates for personal income, social security contributions and inheritance tax, as well as lowering the thresholds at which dividends and capital gains tax start to be taxed.

Also, from 2025 electric vehicles will not be exempt from the special tax for cars.

In the part of cuts in government spending Mr Hunt said there would be increases in departmental budgets but much lower than expected. Of the 30 billion pounds of total cuts, 21.5 billion will take effect after the upcoming elections in early 2024.

Where the Finance Minister has announced particular spending increases are in the areas of education, health and renewable energy.

Specifically, the budget for schools will increase by £2.3 billion a year, while the NHS will receive £3.3 billion more for each of the next two years.

He also confirmed that the construction of a new nuclear power plant in Sizewell will proceed, as well as that funds for renewable energy production will be doubled.

He also spoke of a plan to turn Britain into Europe’s new Silicon Valley by investing in innovation.

Mr Hunt closed his “autumn statement”, as the interim budget is called, with measures for the most vulnerable citizens. Of particular note is the commitment to increase state pensions and welfare benefits from April in line with inflation in September (10.1%) and the minimum wage increase of 9.7% from April, when the financial year begins in Britain.

It will also extend for a year until April 2024 the charge cap on energy bills for each household, albeit at the increased amount of £3,000 instead of £2,500 a year.
“There may be a ‘made in Russia’ recession but there is also a ‘made in Britain’ recovery,” concluded Mr Hunt.

Labour’s shadow Chancellor of the Exchequer Rachel Reeves hit back, saying mistakes by Conservative governments have left the country worse off than it should be. “Never again will the Conservative Party be considered the party of competent economic management,” he added.

He noted that the freeze on tax-free thresholds and low income tax rates combined with inflation will further erode citizens’ disposable income at such a difficult time.

Meanwhile, the OBR in its official forecast estimates that 2023 will be a very difficult year by all economic indicators, before the picture starts to improve from 2024.

Unemployment will peak at 4.9% in 2024 (from 3.6% this year) before beginning to fall, inflation will fall from 9.1% at the end of the financial year to 7.7% at the end of next and the government borrowing will peak at 7.1% of GDP by April before gradually falling.

And wages will fall this year and next year in real terms due to inflation, for the first time in two consecutive years since the financial crisis

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