UK unveils budget amid ‘unprecedented global headwinds’ – US$65 billion of tax hikes and spending cuts
- Britain’s Finance minister Jeremy Hunt announces US$36 billion in spending cuts and about US$28 billion in tax increases
- Emergency budget aims to restore the government’s financial and political credibility after former PM Liz Truss announced US$53 billion in unfunded tax cuts
Britain faces “unprecedented global headwinds,” Treasury chief Jeremy Hunt said Thursday as he announced an emergency budget aimed restoring Britain’s economic credibility and patching up the nation’s battered finances.
Hunt unveiled tax increases and spending cuts in a bid to tame double-digit inflation and rein in a growing deficit. He says the budget will “tackle the cost-of-living crisis and rebuild our economy.”
Just three weeks after taking office, Prime Minister Rishi Sunak’s government faces the challenge of balancing the nation’s budget while helping millions of people slammed by a cost-of-living crisis as Russia’s war in Ukraine pushes up energy prices and slows economic growth.
“Today’s statement will help deliver the long-term stability this country needs,” Sunak promised in a promotional video released ahead of the statement.
Hunt said the government would increase a windfall tax on oil and gas firms and extend it to power generation firms as he seeks to raise money to plug a major hole in the public finances.
The finance minister said the levy would be increased to 35 per cent from its current rate of 25 per cent. It would also apply to electricity generators with a levy of 45 per cent being applied from January 1.
Soaring oil and gas prices in the wake of Russia’s invasion of Ukraine have sent household energy bills to record highs, triggering Britain’s worst cost of living crisis in generations.
Currently the cost of producing electricity from gas-fired power stations is usually the benchmark for setting the wholesale electricity price that helps to determine how much people pay for their energy.
This means generators of renewable power such as wind or solar and nuclear plants can benefit from high wholesale prices.
The Treasury chief also said he would be cutting the tax-free allowance for dividend income and capital gains to fix a hole in the public finances.
Hunt said he would cut the amount shareholders can earn in dividends before they begin paying tax from the current level of £2,000 (US$2,366) to £1,000 next year and £500 from 2024.
The amount people can claim tax-free for capital gains will fall from £12,300 pounds currently to £6,000 pounds next year and £3,000 in 20204, he said.
“These changes still leave us with more generous allowances overall than countries like Germany, Ireland, France, and Canada,” Hunt told parliament as he made a speech on his tax and spending plans.
He also said the government would push forward with the Sizewell C nuclear power plant project, saying it marked “the biggest step in our journey to energy independence”.
“The government will proceed with the new plant at Sizewell C. Subject to final government approvals, the contracts for the initial investment will be signed with relevant parties, including EDF, in the coming weeks,” Hunt told parliament.
“Our £700 million (US$827 million) investment is the first state backing for a nuclear project in over 30 years and represents the biggest step in our journey to energy independence.”
Much of Hunt’s budget had been widely expected, meaning markets offered a muted reaction. Sterling fell against the dollar, but was down by less than before Hunt delivered his comments, while UK government bond prices also eased, but remained clear of the day’s lows.
Additional reporting by Associated Press
