London unveils tight budget despite recession already underway

London unveils tight budget despite recession already underway

Updated: 15 days, 1 hour, 2 minutes, 22 seconds ago

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UK Finance Minister Jeremy Hunt leaves Downing Street to deliver the Autumn Declaration in the House of Commons on November 17, 2022 in London.

UK Finance Minister Jeremy Hunt , unveiled a tough budget on Thursday to fix Britain's finances, with £55 billion in savings and tax hikes, despite the country having already slipped into recession.

It's a balanced stability plan, I've tried to be fair in asking those who have more to contribute more, Mr Hunt argued soberly before Parliament. /p

He unveiled three priorities: stability, growth and public services. Stability, after the financial turmoil of the previous government, tops the list, and with it the fight against inflation, which exceeds 11% in the country and affects the poorest the most.

The new finance minister had the daunting task of reassuring markets chafed by the shock unfunded budget announcements of the previous prime minister, Liz Truss, which had sent the pound plunging to an all-time low and costs soaring loan for the country as for the British.

The Bank of England had to step in to protect the country's threatened financial stability, and ex-Chancellor Kwasi Kwarteng was sacked after just five weeks in office, replaced by Jeremy Hunt as budget firefighter. p

Listing a package of fiscal consolidation measures totaling £55 billion, he mentioned lowering the top income tax threshold, and an increase in the tax on windfall income from oil and energy giants.

Slightly less than half of this amount will come from tax increases, the rest from spending cuts, except in Health and Education: fiscal policy will be tightened significantly in next year, amplifying a recession already underway, say economists at Pantheon Macro.

The potion is bitter. The country is already in recession and gross domestic product is expected to contract another 1.4% next year, forecasts OBR, the state budget forecasting agency.

The pound fell sharply against the dollar after the intervention of Mr. Hunt.

The context reminds the British of the dark hours of the financial crisis of 2008 and 2009, which was followed by an austerity cure with lasting consequences on public services, and particularly the NHS, the chronically underfunded free public health service.

Mr Hunt insisted that the fight against inflation is taking precedence over growth which he says is eating Britons' incomes even more than tax hikes.

He attributed the country's bleak outlook to global factors: the COVID pandemic and the energy crisis generated by Russia and its invasion of Ukraine.

In addition to COVID and the war in Ukraine, the United Kingdom is suffering from the impact of Brexit which is crippling trade with its large European neighbor and hampering the hiring of workers from the continent, which contributes to inflation and loss of productivity.

The minister was careful to rely on figures from the OBR, the absence of which during the previous government's disastrous mini-budget had helped cause a panic in the markets. The institute also anticipates an increase in the unemployment rate, currently at 3.6%, to 4.9% in 2024.

In addition to raising the windfall tax on the profits of energy giants, Mr. Hunt also announced a new temporary tax of 45% on electricity producers.

A reduction tax thresholds for dividends and capital gains taxes will also increase tax revenue, and the tax reduction granted on real estate transactions will be limited in time.

Health and Education are doing well and seeing their budgets rise, but other departments will see their spending growth slow over the next five years to generate £30 billion in savings .

Rare good news: pensions will be increased at the rate of inflation, as will certain allowances, and the minimum wage will increase.

Opposition Labor leader Rachel Reeves lamented a decor mess from 12 weeks of chaos during Liz Truss's short-lived tenure, but also from 12 years of Conservative economic failure.

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