The Rishi Sunak government announced a £55 billion “consolidation” package of tax hikes and spending cuts in an attempt to get Britain’s public finances back on track partly to undo the damage caused by former Prime Minister Liz Truss’s September ‘Mini-Budget’, which had startled markets. The measures, some details of which were already released, were announced by Chancellor Jeremy Hunt in the House of Commons on Thursday, and they come as Britain slips into a recession and grapples with 11.1% inflation — its highest in 41 years.
The ‘Autumn Statement’, which was a response to the soaring cost of living, high energy costs, extraordinary spending undertaken during the pandemic, and global impacts of the Russia-Ukraine war, was intended to improve “stability, growth and public services” as per Mr. Hunt.
The shadow Chancellor, Labour’s Rachel Reeves, speaking in Parliament after Mr. Hunt, blamed “12 weeks of Conservative chaos” and “12 years of Conservative economic failure” for the U.K.’s current situation. The standard of living, as measured by real disposable income per person, is expected to fall by 4.3% in the current fiscal year and 2.8% the following year, according to fiscal watchdog, the Office of Budget Responsibility (OBR), which also released its statistics on Thursday.
Just a day earlier, Bank of England Governor Andrew Bailey had told the Commons Treasury Committee that the U.K.’s GDP was 0.7% lower than pre-COVID levels, while Eurozone and the U.S. had recovered to above pre-COVID levels. Mr. Bailey had also agreed that Brexit had had adverse impacts on the U.K. economy.
Mr. Hunt’s package was a combination of £30 billion in spending cuts and £25 billion in tax increases, including a lowering of the threshold for the highest rate of personal income tax of 45%, from £1,50,000 to £1,25,000. This is a significant shift from the scrapping of the 45% rate that Kwasi Kwarteng, Chancellor in the Truss government, had initially announced in September. Other tax thresholds will remain frozen — meaning Britons will pay more taxes as they go into higher brackets as salaries rise with inflation. Dividend and capital gains allowances will also be reduced, starting April next year. Support for energy bills will also be more muted.
Tax bills for business will go up, including a time-bound increase in windfall taxes on energy companies, expected to raise £14 billion next year.
National living wage
Mr. Hunt also announced a 9.7% increase in the ‘national living wage’ to £10.42 per hour and pension increases in line with inflation. The statement included additional funding for the NHS and schools and Mr. Hunt agreed that defence spending would need to increase but will stay at least at 2% of GDP — in line with the U.K.’s NATO commitments, until the revision of the U.K.’s Integrated Review (of foreign and security policy) was completed.
Spending cuts, however, will mostly begin to take effect in 2024 and extend past January 2025, by when Mr. Sunak has to call for the next general election. Ms. Reeves said the government was attempting to “lay some so-called traps for the Labour Party” as she outlined her view of Mr. Hunt’s measures.
Alison Thewliss, a spokesperson for the Scottish National Party (SNP), which wants Scotland to be part of the European Union (EU), said the Tories and the Labour party were in “denial about the long-term damage they are causing with Brexit”, according to The Guardian.
Markets reacted relatively calmly to the announcement — the Pound was trading at slightly under $1.18 after the 11.30 a.m. Budget announcement, a small drop of about 1.1% in its value from the morning.
