Millions of Britons are facing higher taxes and higher energy bills after the government announced an emergency budget on Thursday aimed at restoring the country's economic credibility and buoying its battered public finances.
Treasury Chief Jeremy Hunt has vowed to protect the most vulnerable, including retirees and low-income people, and increase funding for basic public services like health care and education, even as he mandated $55 billion pounds ($65 billion) in tax increases and spending cuts. Hunt acknowledged that he was offering "a substantial tax hike," with measures including higher taxes on top income earners and levies on some businesses.
At the same time, Hunt pledged to spend billions of pounds to help consumers pay high energy bills, raise social benefits and pensions in line with inflation, and maintain investment in energy and infrastructure projects. Just three weeks after taking office, Prime Minister Rishi Sunak's government faces the challenge of balancing the nation's budget by helping millions hit by a cost-of-living crisis as Russia's war in Ukraine escalates. .
The emergency budget declaration aimed to restore the government's financial and political credibility after former Prime Minister Liz Truss announced £45 billion ($53 billion) of unfunded tax cuts that torpedoed public confidence. triggered a central emergency. banking intervention.
Saying the UK faces "unprecedented global headwinds," Hunt unveiled the package he says would help tame inflation and public debt while strengthening the economy. "It's a balanced plan for stability, a plan for growth and a plan for public services," he told the House of Commons. "It shows you don't have to choose between a strong economy or good public services."
Faced with pressure to leverage huge profits from oil and gas companies to help fund support for struggling Britons, the government increased its income tax from 25% to 35% from January 2024 to March 2024. 2028. Electricity producers will also have to pay a new temporary tax of 45%. Hunt said combined taxes would rise by £14bn next year.
Hunt has promised to protect government spending in key sectors such as health care and education, as well as investments in energy and infrastructure projects. But he has delayed key decisions, such as whether to deliver on the previous government's promise to raise defense spending to 3% of economic output. Retirees and people on benefits will see their payments rise in line with inflation, while millions of minimum-wage workers will receive a 9.7% hike in April, Hunt said.
However, millions of homes face higher energy bills as the price cap rises from £2,500 a year for the average home to £3,000 in April. Opposition Labor Party economy spokeswoman Rachel Reeves dismissed the budget as "more taxes, more inflation, more mortgages".
Hunt pointed to the pain in front of him. You said the Independent Office of Fiscal Accountability said that inflation will reach 9.1% this year and 7.4% next year, but will start declining sharply from mid-2023. He said the office believes the UK is already in a recession.
The economy contracted by 0.2% between July and September, according to official statistics, and the Bank of England is forecasting a recession that could last up to two years. Two-quarter economic contraction is a long-standing informal definition of a recession and one used by the UK. The country does not have an independent body that reports recessions like the US and Europe, which use more detailed data to make decisions, such as rising unemployment and job losses. The labor market remains strong in all of these countries.
Against this backdrop, the government will struggle to meet all the competing demands, said Torsten Bell, executive director of the Resolution Foundation, a think tank that seeks to improve the living standards of low- and middle-income people. "The uncomfortable reality is that unless world energy prices rise in reverse, we will continue to be a poorer country than we ever expected," Bell wrote this week.
The government is facing lawsuits from nurses, police officers, border guards and civil servants clamoring for pay rises after inflation accelerated to a 41-year high of 11.1% in October. Welfare recipients and retirees are also demanding higher payments, and low-income families are demanding an expansion of the free school lunch program.
But resources are limited and Sunak faces a deficit of at least 40 billion pounds ($47 billion).
The toll comes against a grim backdrop, with the war in Ukraine, the aftershocks of the COVID-19 pandemic and the economic strains of Britain's exit from the European Union weighing on the UK economy.
Hunt and Sunak have rescinded most of Truss's policies, promising that the government will pay his bills and begin reducing the debts he has accumulated over the past 15 years. UK public debt rose to nearly 83% of economic output in 2017 from less than 36% in 2007 as the government bailed out the banks and struggled to revive the economy. A decade of fiscal tightening had begun to ease the burden as the COVID-19 pandemic and war in Ukraine pushed debt to 98% of gross domestic product. It is the highest since 1963, when Britain was still recovering from World War II.
But some economists warn against moving too quickly to cut public debt at a time when rising food, energy and housing costs will wipe out the savings of a fifth of British households. Among those most in need of help is Magdelena Prosenic, a single mother who said she struggled to feed her two young children as she waited in line at a community food pantry in south London on Wednesday.
For £5 people can buy 20 items of fresh fruit, vegetables and basic necessities such as tinned beans and pasta. But items like eggs, the price of which has skyrocketed, are in high demand, with only enough for those who get there early.
"We've received benefits, but it's hard to support two children without help," Prosenic said, hoping to get food for her toddler and 3-year-old son. "Kids need fruit, they need diapers and formula."
Anna Sjovorr-Packham, who runs the pantry, said the number of families buying food from them is "slowly but steadily" increasing. And then come the cold winter months, when families need to spend more on heating.
"I think there used to be an idea that people who access food pantries might need the service as a last resort—there might be a stigma about the type of person," she said. "But now everyone is definitely using the handouts."