UK enters economic recession and announces tax hike

“We are honest about the challenges we face and fair with our solutions,” he assured while imposing the return of austerity to a country of 67 million inhabitants, the sixth largest economy on the planet, mired in crisis.

This is part of a global trend driven in recent years by the covid-19 pandemic and the Russian invasion of Ukraine, which hurt growth and skyrocketed energy prices, Hunt defended.

However, he avoided mentioning the consequences of Brexit -effective since the beginning of 2020-, which, according to Bank of England officials, damages British foreign trade and makes it difficult to hire much-needed labor.

The minister confirmed that, according to data from the Office for Budgetary Responsibility (OBR), the United Kingdom has already entered a recession and its GDP is expected to fall 1.4% in 2023. According to the Bank of England, this recession could last until mid-2024 and be the longest in British history.

Among the tax increases announced, London will increase from the current 25% to 35% its tax on the exceptional profits of oil companies -driven by the skyrocketing prices in the context of the war in Ukraine- and will extend it for three years until 2028. Hunt also announced “a new temporary 45% tax on electricity producers,” including renewables, who benefit from the rate increase.

“Give the world confidence”

The new finance minister sought with these measures to fulfill his delicate mission of reassuring the markets about the reliability of the United Kingdom, after the chaos caused by the ultra-liberal economic policies announced in September by the government of the short-lived Conservative Prime Minister Liz Truss.

In his brief tenure, he presented a plan to “boost growth” that combined major energy subsidies with steep tax cuts with no funding other than fattening Britain’s already bloated public debt.

In a context of very high inflation, this caused unease in the financial markets, the pound fell to record lows and interest on the public debt skyrocketed, dragging with it credit to companies and families.

The also conservative Rishi Sunak, appointed less than a month ago to replace Truss, expelled from power after a month and a half, promised to correct the “mistakes” of his predecessor.

With this mission, Hunt declared himself determined to “give the world confidence in our ability to pay our debts” and announced new rules to control public debt.

The United Kingdom thus sees the return of austerity policies comparable to those adopted as a result of the banking crisis of 2008, the consequences of which are still being felt, especially in public health.

Hunt listed among his priorities “protecting the most vulnerable” and “avoiding tax hikes that hurt growth.”

The executive will thus update pensions and social benefits in line with inflation. He will also dedicate more funds to public health still weighed down by record waiting lists since the start of the pandemic in March 2020.

In return, it will allow local administrations to raise municipal taxes to finance social assistance and will freeze some tax thresholds, especially on income.

This will cause more households to pay taxes, moving to a higher bracket thanks to their wage increases, although these are lower than the galloping inflation of 11.1% year-on-year in October, losing purchasing power in real terms.

Promising to “ask more of those who have more”, Hunt said the maximum income tax bracket of 45% will now apply from £125,000 a year instead of the current £150,000.