LONDON — Britain’s top finance minister unveiled a £55 billion package of tax rises and public spending cuts Thursday as he tried to reassure markets that the ailing U.K. economy is back on track.
Jeremy Hunt, installed as chancellor last month in the wake of former Prime Minister Liz Truss’ debt-funded ‘mini-budget’ that rocked market confidence and saw borrowing costs soar, confirmed the U.K. economy is already in recession and set to shrink by a further 1.4 percent next year.
U.K. borrowing is projected to hit £177 billion this year, he said, before falling to £69 billion by 2027/8.
Unveiling a fresh fiscal plan in the House of Commons Thursday, Hunt said his priorities were “stability, growth and public services” as the U.K. battles soaring inflation.
“High inflation is the enemy of stability,” he told MPs. “It means higher mortgage rates, more expensive food and fuel bills, businesses failing and unemployment rising. It erodes savings, causes industrial unrest, and cuts finding for public services. It hurts the poorest the most and eats away at the trust upon which a strong society is built.”
Headline measures announced by Hunt include reducing the threshold for the top rate of income tax from £150,000 to £125,000. Tax allowances and other income tax thresholds will be frozen to 2028, meaning more people will be dragged into higher tax brackets.
Energy firms’ profits will also be hit with an increased windfall tax of 35 percent, up from 25 percent, from January 2023. Electricity generators will also see a temporary 45 percent levy — with the combined measures expected to raise some £14 billion.
But Hunt vowed to protect education, infrastructure and R&D spending in a bid to boost long-term growth. He also said welfare payments and pensions will rise in line with inflation, in an attempt to “protect the most vulnerable” from the economic storm.
The chancellor, who heaped praise on the Bank of England and the U.K.’s fiscal watchdog, the Office for Budget Responsibility — which were respectively criticized and sidelined by his predecessors — said the plans outlined would reduce the pressure on the central bank to hike interest rates further, “because, as Conservatives, we do not leave our debts to the next generation.”
Thursday’s announcement has been viewed in Westminster as a pivotal moment for the long-term prospects of new U.K. Prime Minister Rishi Sunak. The fiscal package could either revive Conservative hopes of winning the next general election — or further dent the standing of a party currently trailing Labour badly in the polls.
This developing story is being updated.
