Chancellor of the Exchequer Jeremy Hunt announced on Thursday a £55 billion fiscal plan with £30 billion in spending cuts and £25 billion in tax hikes. The measures which anticipate a cold winter and long recession in the UK, included an extra two-year freeze on income tax thresholds and a lowering of the top rate of income tax to £125,140
Hunt said the measures would reassure markets that the government and the Bank of England are now working in “lockstep.”
“We need fiscal and monetary policy to work together,” he said. “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.”
The measures will increase financial hardship on millions of Britons as they confront the country’s worst cost-of-living crisis in decades and its longest-ever recession.
However, Hunt said they were necessary to limit 41% year high inflation and recover UK’s reputation; dubbing the plan the “ultimate growth strategy.”
Among other measures announced were a 10% increase in the state pension, benefits and tax credits — in line with September’s inflation figure — and an increase in the National Living Wage to £10.42 an hour for those aged 23 and above.
Hunt also confirmed that the energy industry will face an expanded windfall tax of 35% up from 25%. Meantime, household support for energy bills will be cut back, with typical bills rising from £2,500 a year to £3,000 from April 2023.
Still, many of the fiscal measures are scheduled for the years after an expected 2024 general election.
Thursday’s statement was accompanied by a long-awaited set of projections from the U.K.’s independent Office for Budget Responsibility (OBR), which painted a gloomy economic picture for Britain.
The forecasts show that the U.K. is now in a recession, which it expects to last “just over a year,” and during which employment will rise from 3.5% to 4.9%.
Hunt said the government’s new plan ensures that the downturn is shallower and unemployment lower than previously forecast.