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Financial News: UK Chancellor Unveils Tax Raises, Cost Of Living

UK Chancellor Unveils Tax Raises, Cost Of Living Support Amid Recession

11/17/2022 - 12:30:00 (RTTNews)

(RTTNews) - UK Chancellor Jeremy Hunt on Thursday announced tax measures that would raise billions, spending cuts and cost of living support measures for households and businesses struggling with soaring energy bills as he confirmed the economy is in a recession.

Headline inflation rate is forecast to be 9.1 percent this year and 7.4 percent next year, Hunt said in his autumn statement, citing the latest projections from the Office for Budget Responsibility. "They confirm that our actions today help inflation to fall sharply from the middle of next year."

"They also judge that the UK, like other countries, is now in recession," Hunt added. The OBR downgraded the UK growth projections from those in March, owing mainly to the surge in energy costs.

The UK economy is forecast to grow by 4.2 percent this year, while output is projected to fall 1.4 percent next year.

Thereafter, GDP is expected to rise 1.3 percent in 2024 and the growth rate is forecast to reach 2.7 percent in 2026. Unemployment is expected to climb from 3.6 percent now to 4.9 percent in 2024 before falling to 4.1 percent.

"Rising prices erode real wages and reduce living standards by 7 percent in total over the two financial years to 2023-24 (wiping out the previous eight years' growth), despite over GBP 100 billion of additional government support," the OBR report said.

OBR forecast the UK's borrowing at 7.1 percent of GDP or GBP 177 billion this year. That is expected to fall to 5.5 percent of GDP or GBP 140 billion next year and eventually reach 2.4 percent of GDP or GBP 69 billion by 2027-28.

Underlying debt as a percentage of GDP is projected to fall from a peak of 97.6 percent of GDP in 2025-26 to 97.3 percent in 2027-28.

"The OBR confirm that because of our plans, the recession is shallower, and inflation is reduced," Hunt said.

Reckoning that just under half of the GBP 55 billion consolidation envisaged in the autumn statement comes from tax, and just over half from spending, Hunt said this is a balanced plan for stability.

The chancellor reduced the income threshold at which the 45p rate becomes payable from GBP 150,000 to GBP 125,140.

The current levels of the income tax personal allowance, higher rate threshold, main national insurance thresholds and the inheritance tax thresholds were frozen for a further two years till April 2028.

The dividend allowance and the annual exemption amount for capital gains tax would be halved next year.

As electric vehicles have become popular, the chancellor decided to do away with the vehicle excise duty exemption for the same from April 2025. With the housing market expected to remain dull over the next two years, Hunt maintained the stamp duty cuts announced in the mini-budget until March 31, 2025.

Considering the windfall profits made by energy business due to the unexpected surge in energy prices, the chancellor decided to raise the energy profits levy from 25 percent to 35 percent, from January 1 until March 2028. Further, a new 45 percent levy on electricity generators was also announced. Hunt stressed that both these levies would be temporary. The chancellor said the National Health Service budget would be increased in each of the next two years, by an extra GBP 3.3 billion.

Hunt said the government retains the plan to spend GBP 55 billion to help households and businesses with their energy bills. From April next year, the government will continue the Energy Price Guarantee for a further 12 months at a higher level of GBP 3000 per year for the average household.

The government is also set to launch an additional cost of living payment next year for the most vulnerable households, pensioners and individuals.

The chancellor also said the national living wage will be raised by 9.7 percent from April next year to GBP 10.42 per hour, which equals an annual pay rise worth over GBP 1,600 to a full-time worker.

Hunt also announced measures that translates to an overall 10.1 percent rise in benefits and the state pension.

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