To close a sizable gap in the nation’s public finances, U.K. Finance Minister Jeremy Hunt announced a raft of tax increases and spending reductions in his Autumn Statement on Thursday. In an effort to repair the country’s credibility under the leadership of new Prime Minister Rishi Sunak following the instability caused by the disastrous “mini-budget” of former leader Liz Truss in late September, he revealed a comprehensive £55 billion ($66 billion) fiscal plan with UK estate agents.
The announcements made by Hunt on Thursday will result in millions more individuals paying higher income tax rates and energy costs. He also confirmed a significant rise in windfall taxes on oil and gas company earnings and more funding for the National Health Service and schools. According to the independent Office for Budget Responsibility (OBR), the U.K. economy is currently in a recession, and GDP will decline by 1.4% in 2023. Inflation is expected to reach 9.1% this year and 7.4% the following year.
The Results Of The Mini-Budget
1% Fewer British Pounds Are Being Exchanged For Dollars
During afternoon trading, the British pound dropped 1% versus the U.S. dollar shortly after the U.K. Finance Minister Jeremy Hunt revealed the government’s budget strategy. The price of sterling last seen trading was $1.1784
Conservative Lawmaker Jacob Rees-Mogg Criticises Tax Increases
Conservative lawmaker Jacob Rees-Mogg, a supporter of former leaders Liz Truss and Boris Johnson, opposed the government’s tax rises. He declared, “I’m particularly concerned about tax increases during an economic downturn. “You would naturally forestall some financial provision from a recession-hit budget.”
OBR: The U.K. Will Experience The Most Significant Drop In Living Standards Ever Recorded
The independent Office for Budget Responsibility released a report on Thursday predicting that the United Kingdom will experience the most significant decline in living standards in recorded history (OBR).
The most considerable single-year loss since the Office for National Statistics started keeping track in 1956–1957 will occur in 2022–2023, when real household disposable income, a gauge of living standards, is predicted to decline by 4.3%. The following year will see the second-largest drop of 2.8%, and the cumulative reduction of 7.1% from 2021–2022 to 2023–2024 will bring RHDI to its lowest point since 2014. RHDI is anticipated to return to its 2021–22 level by 2027–28 but will still be more than 1% below its pre–pandemic level, according to the OBR.
Announcements Were Anticipated But Weren’t “Any Less Unpleasant Economically.”
According to Luke Bartholomew, senior economist at Abrdn, the government’s pronouncements were widely anticipated, which accounts for the favorable market response, but this did not make them “any less economically damaging.”
“Tighter fiscal policy is creating yet another barrier to growth while the economy is on the verge of a severe downturn. Nevertheless, it is far from apparent that there is much room for much softer fiscal policy to promote growth given the U.K.’s pronounced underlying inflation pressure, Bartholomew added.
“The government’s strategy is based on the assumption that by tightening fiscal policy, the monetary policy won’t need to draw as much, keeping interest rates lower than they otherwise would have. This means that interest rate-sensitive portions of the economy, particularly the housing industry, are more protected than they otherwise would have been.
Labour: “A Bill For The Economic Carnage This Government Has Wrought” Was Delivered To The Public.
“All the country got today was an invoice for the economic catastrophe that this administration has unleashed,” said Shadow Finance Minister Rachel Reeves. She asserted that the U.K. was “uniquely exposed” to external shocks as a result of decisions made by the Conservative government and years of “stagnation,” accusing Prime Minister Rishi Sunak’s administration of attempting to artificially distance itself from the harm caused by his predecessor Liz Truss’ September “mini-budget.”
Reeves noted that the United Kingdom is the only G-7 (Group of Seven) nation whose GDP has yet to return to pre-pandemic levels. The IMF anticipates that the U.K. will grow at the slowest rate over the next two years among the world’s 38 most industrialized nations. She said that no other advanced country was raising taxes or cutting spending as a downturn loomed, and she accused the administration of overseeing “the worst pay squeeze in history.”
Her statement that Hunt had “ripped the pockets” of working people through “a litany of stealth taxes” that will cost the typical individual £600 was followed by the statement that “this was a crisis produced in Downing Street, and it is regular working people who are paying the penalty.”
By 2026–2027, the tax cuts that were just proposed will leave the public with a £45 billion hole in its coffers. On incomes over £12,570, the introductory income tax rate will decrease to 19p from 20p starting in April 2023. For fifteen years, it will be the first. The 45p surcharge for the wealthiest has been eliminated.