LONDON — The British government on Thursday unveiled its much-anticipated budget proposal as the country sinks into recession after months of political upheaval.
Jeremy Hunt, the chancellor of the Exchequer, unveiled £55 billion in tax rises and spending cuts in what’s known in Britain as the “autumn statement,’’ intended to fill a huge gap in the budget.
The announcement had originally been slated for October, but the government pushed it back to give it more time to repair the damage from a sweeping series of tax cuts in September that caused the pound to plunge and eventually led to the resignation of Liz Truss as prime minister. Thursday’s announcement comes as Britain is experiencing the highest surge in consumer prices in more than four decades, with inflation rising to more than 11.1 percent in October compared with a year earlier, a sign of the deepening cost of living crisis across the nation.
Here’s what to know about the government’s new budget.
Rising taxes will impact many earners.
Jeremy Hunt, the chancellor of the Exchequer, had already warned that “we will see everyone paying more tax” ahead of the announcement, but just what that will look like quickly became clear on Thursday. He outlined measures that represented a sharp departure from Ms. Truss’s tax-cutting vision.
Mr. Hunt did not raise rates but instead ensured that more people will pay more in taxes. The government plans to freeze the threshold at which people start to pay income tax — or move into a higher band — for an additional two years until April 2028, rather than having those bands rise with the rate of inflation.
But high earners will also be crunched by the tax shifts. His new plan will see the threshold reduced to 125,140 pounds per year, from the existing level of £150,000 per year, for earners to pay the very top tax rate of45 percent.Given that inflation is running into the double digits, these changes will affect hundreds of thousands of Britons in the next few years.
A windfall tax on energy firms and generators.
Energy firms have been paying a windfall tax to the British government since Prime Minister Rishi Sunak introduced a modest tax in May while serving in his previous role as chancellor, a measure that is directed at the extraordinary earnings in the sector amid soaring energy costs caused by the war in Ukraine.
Now, the cash-strapped government has raised that tax from 25 to 35 percent until March 2028. That moneymaking move is popular among voters and was pushed by the opposition Labour Party. Mr. Hunt also announced a 45 percent temporary levy on energy generators, and the two measures taken together are expected to bring in 14 billion pounds next year.
Once again, he is reversing plans by Ms. Truss and her chancellor, Kwasi Kwarteng, who opposed increasing the windfall tax.
Additional funding for health and education
Public funding had already been cut for almost a decade after austerity policies were put in place in the wake of the 2007 financial crash, and there were concerns that funding for health care and education could be at risk. Britain’s health service has already been strained by the coronavirus pandemic with work force shortages, and there has also been major pressure in the social care sector.
Mr. Hunt committed to coming up with an independent work force plan to address the staffing needs of the health service for years to come. The new plan will also increase the budget for England’s National Health Service in each of the next two years by 3.3 billion pounds, and provide an additional 4.7 billion for social care, amounting to an 8 billion pound package for the sector.
Amanda Pritchard, the chief executive of NHS England, said the funding was welcome amid “daunting challenges.”
The new plan will also see the government invest an additional 2.3 billion pounds in education.
Many of the cuts will come after the next general election.
Although around half of the budget plan targets public spending programs, many of the reductions have been delayed for years, pushing much of the pain down the road. The argument for this is that Britain is already in recession, forecasters say, and therefore the government does not want to worsen the downturn by taking money out of the economy now.
So the plan is to wait for a couple of years, when growth is expected to recover. There is also a political argument because this conveniently postpones much of the pain until after the next general election.
There will be some cuts in the near term, however: the budgets of most government departments will not keep pace with the real rate of inflation, forcing them to make savings.
This time, the market reaction was relatively subdued.
Much of Mr. Hunt’s announcement focused on stability, an effort to calm the turmoil that erupted in the wake of the proposals made by his predecessor. The government had also telegraphed much of its plan throughout the week.
As a result, after Mr. Hunt’s statement the British pound suffered only a modest decline, falling 1 percent against the dollar, to around $1.18. The FTSE 100 stock index slipped slightly and the 10-year government bond yield, a benchmark for borrowing costs across the economy, rose to just over 3.2 percent.
During the worst of the turmoil after the mini-budget in late September, the pound had dropped to $1.04 and the 10-year yield soared above 4.5 percent.
For Britons, it’s not such a rosy picture
Many western economies are expected to dip into recession, so it’s not just Britain that is suffering as energy costs surge and inflation and interest rates soar. But the picture painted by the Office for Budget Responsibility, Britain’s official watchdog, is gloomy.
Its number crunching showed that rising taxes, high inflation and shrinking GDP will amount to the biggest fall in household disposable income since records began. They aren’t expected to return to prepandemic levels until after 2028. Living standards are expected to drop by 7 percent over the next two years, according to their forecast.
Jason Karaian contributed reporting from London.