Hunt increases taxes to tackle UK public finances

Reuters

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LONDON — British finance minister Jeremy Hunt increased taxes on higher earners and energy companies on Thursday in a new plan that is designed to repair the country’s public finances. He also revealed that the economy was forecast to shrink by 1.4% in 2023.

Below are the key quotes:

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ON THE CHALLENGE AHEAD:

“Today we deliver a plan to tackle the cost-of-living crisis and rebuild our economy. Our priorities are stability, growth, and public services. We also protect the vulnerable because to be British is to be compassionate and this is a compassionate Conservative government.”

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ON THE BANK OF ENGLAND

“The Bank of England, which has done an outstanding job since its independence, now has my wholehearted support in its mission to defeat inflation and I today confirm we will not change its remit.

“But we need fiscal and monetary policy to work together – and that means the government and the Bank working in lockstep. It means, in particular, giving the world confidence in our ability to pay our debts.”

ON INFLATION FORECASTS

“The OBR forecast the UK’s inflation rate to be 9.1% this year and 7.4% next year. 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.”

ON GROWTH/UNEMPLOYMENT/DEBT FORECASTS

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“Overall this year, the economy is still forecast to grow by 4.2%. GDP then falls in 2023 by 1.4%, before rising by 1.3%, 2.6%, and 2.7% in the following three years. The OBR says higher energy prices explain the majority of the downward revision in cumulative growth since March. They also expect a rise in unemployment from 3.6% today to 4.9% in 2024 before falling to 4.1%.”

“They also expect a rise in unemployment from 3.6% today to 4.9% in 2024 before falling to 4.1%.”

“Today’s decisions mean that over the next five years, borrowing is more than halved. This year, we are forecast to borrow 7.1% of GDP or 177 billion pounds; next year, 5.5% of GDP or 140 billion pounds; then by 2027-28, it falls to 2.4% of GDP or 69 billion pounds.

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“As a result, underlying debt as a percentage of GDP starts to fall from a peak of 97.6% of GDP in 2025-26 to 97.3% in 2027-28.”

ON NEW FISCAL RULES

“I also confirm two new fiscal rules: the first is that underlying debt must fall as a percentage of GDP by the fifth year of a rolling five-year period. The second, that public sector borrowing, over the same period, must be below 3% of GDP. The plan I’m announcing today meets both rules.”

ON TAX RISES

“On tax, I have tried to be fair by following two broad principles: firstly, we ask those with more to contribute more; and secondly, we avoid the tax rises that most damage growth.

“Although my decisions today do lead to a substantial tax increase, we have not raised headline rates of taxation, and tax as a percentage of GDP will increase by just 1% over the next five years.

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“Asking more from those who have more means that the first difficult decision I take on tax is to reduce the threshold at which the 45p rate becomes payable from 150,000 pounds to 125,140 pounds. Those earning 150,000 pounds or more will pay just over 1,200 pounds more a year.”

“I am maintaining at current levels the income tax personal allowance, higher rate threshold, main national insurance thresholds and the inheritance tax thresholds for a further two years taking us to April 2028.”

“The dividend allowance will be cut from 2,000 pounds to 1,000 pounds next year and then to 500 pounds from April 2024. The Annual Exempt Amount for capital gains tax will be cut from 12,300 pounds to 6,000 pounds next year and then to 3,000 pounds from April 2024.”

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ON WINDFALL TAXES

“From January 1st until March 2028 we will increase the Energy Profits Levy from 25% to 35%.

“The structure of our energy market also creates windfall profits for low-carbon electricity generation so, from January 1st, we have also decided to introduce a new, temporary 45% levy on electricity generators. Together these taxes raise 14 billion pounds next year.”

ON DEFENCE SPENDING/ FOREIGN AID BUDGET

“We will continue to maintain the defense budget at least 2% of GDP to be consistent with our NATO commitment.

“The OBR’s forecasts show a significant shock to public finances so it will not be possible to return to the 0.7% target until the fiscal situation allows. We remain fully committed to the target and the plans I have set out today assume that ODA spending will remain around 0.5% for the forecast period.”

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ON ENERGY PLANS

“By 2030, we want to reduce energy consumption from buildings and industry by 15%. Reducing demand by this much means, in today’s prices, a 28 billion pound saving from our national energy bill or 450 pounds off the average household bill.

“In this Parliament, we’re already planning to invest, in energy efficiency, a total of 6.6 billion pounds. Today, I’m announcing new funding, from 2025, of a further 6 billion pounds – doubling our annual investment to deliver this new national ambition.”

ON EDUCATION

“I can announce today that next year and the year after, we will invest an extra 2.3 billion pounds per year in our schools.” (Reporting by Kate Holton and Suban Abdulla)

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