UK Finance Minister Jeremy Hunt confirmed that the UK is in recession as he made his Autumn Budget statement on Thursday, which includes tax rises, including an increase in the rate applied to energy companies’ windfall profits, and a reduction in the threshold for the top income tax bracket, which will increase the number of taxpayers affected.
In his appearance before the House of Commons, the head of the British Treasury confirmed the forecasts of the Office for Budget Responsibility (OBR), which point to a UK GDP expansion of 4.2% this year, compared to the 3.8% forecast in March, but which point to a contraction of 1.4% in 2023, compared to the previously forecast growth of 1.8%.
As for inflation, the UK government’s new macroeconomic picture anticipates a 9.1% rise in prices in 2022, up from the 7.4% forecast in March, moderating in 2023 to 7.4%, instead of the 4% previously expected.
In the longer term, the OBR’s projections point to UK GDP growth of 1.3% in 2024, eight tenths lower than previously expected, as well as 2.6% in 2025, compared to the previous forecast of 1.8%, and 2.7% in 2027, one percentage point higher than anticipated, while 2.2% growth is expected in 2027.
In his appearance, the British Chancellor defended that the Autumn Statement represents a «balanced path to stability», with fiscal consolidation estimated at around 55 billion pounds (62.919 billion euros), which implies «taking difficult decisions».
«There is a global energy crisis, a global inflation crisis and a global economic crisis. But today with this plan for stability, growth and public services, we will weather the storm. We do so today with British resilience and British compassion,» Hunt defended.
«Anyone who says there are easy answers is not being honest with the British people: some advocate spending cuts, but that would not be compatible with high quality public services», he defended, while assuring that «high taxes damage businesses and erode freedom».
In this way, he stated that, although low taxes and solid accounts are preferred, this has to come first, because inflation eats away at the pound in people’s pockets «even more than taxes», so he stressed that the planned consolidation is distributed almost equally between tax and spending measures. «It is a balanced plan for stability,» he added.
TAX INCREASES.
Among the tax hikes announced to increase revenue by some 25 billion pounds (28.6 billion euros), the head of the UK Treasury has announced that the income tax threshold above which 45% will be paid will be reduced to 125,140 pounds (143,159 euros) from the current 150,000 pounds (171,600 euros), while the minimum thresholds for income tax, inheritance tax and national insurance will be frozen for two more years until April 2028.
Also, companies «with the broadest shoulders» will be asked to bear a greater share of the burden, he has stressed in reference to the implementation of reforms developed by the Organization for Economic Cooperation and Development (OECD) and agreed internationally to ensure that multinationals pay their fair share of tax.
Thus, as already confirmed in October, the main rate of corporation tax will increase in the UK to 25% from the current 19% from April 2023, as agreed by the government headed by Boris Johnson.
Also, to ensure that companies making windfall profits as a result of high energy prices also pay their fair share, from January 1, 2023, the tax on energy profits of oil and gas companies will increase from 25% to 35%, and will remain in force until the end of March 2028, while a new temporary levy of 45% will be introduced for electricity generators.
In addition, given the good pace in the shift towards electric vehicles, the minister has announced that «from 2025, road tax will be introduced for electric vehicles so that all drivers will start paying a fair share.»
On the other hand, he has indicated that the free dividend allowance will be reduced from £2,000 to £1,000 next year, and by half from April 2024, and the annual amount exempt on capital gains tax will be reduced from £12,300 (€14,071) to £6,000 (€6,864) next year and down to £3,000 (€3,432) from April 2024.
PROTECTION.
On his side, the British Chancellor has announced a specific support package for the most vulnerable in the face of the rising cost of living, endowed with 26 billion pounds (29.744 billion euros), including measures to support them in the face of rising energy bills.
In this way, around eight million households will receive a payment of 900 pounds (1,030 euros) in installments, with 300 pounds for pensioners (344 euros) and 150 pounds (172 euros) for people on disability benefits.
Also, the energy price guarantee will be extended from April 2023 with a cap increasing to £3,000 (€3,432). Given that prices are forecast to remain high over the next year, this equates to an average support of £500 (€572) per household in 2023-24.
Meanwhile, the National Minimum Wage will increase by 9.7% to £10.42 an hour, giving a full-time worker a pay rise of more than £1,600 a year, benefiting 2 million of the lowest paid workers.
