Northwest Arkansas Democrat-Gazette
U.K. unveils tax hikes, fund cuts
$65B budget boost a first step as Brits steel for austerity
LONDON — Seeking to restore Britain’s fiscal credibility after a calamitous foray into trickle-down economics, the British government Thursday announced tens of billions of dollars in tax increases and spending cuts to plug a gaping hole in the nation’s public finances.
Chancellor of the Exchequer Jeremy Hunt detailed a raft of higher taxes, worth about $29.7 billion, and cuts to government programs, saving about $35.6 billion. Together, it amounted to one of the most austere budgets ever imposed on Britain, a country that is already in a recession.
The plan’s immediate goal was to reduce a public deficit swollen by vast payouts during the coronavirus pandemic and the energy crisis. But the budget was also an act of fiscal penitence after the sweeping tax cuts rolled out in September by the last prime minister, Liz Truss. Those proposals roiled the markets, caused the pound to crash and cost Truss her job a few weeks later.
The remedy prescribed by Hunt and his boss, Prime Minister Rishi Sunak, will be economically and politically painful, although many of the spending cuts do not kick in for two years. The plan will raise taxes on tens of millions of Britons, who will suddenly find themselves in a higher tax bracket, and effectively cut funding for the Defense Ministry, foreign aid and cultural institutions.
In a stark illustration of the economic anguish ahead, household disposable income is projected to fall 7% over the next two years, according to the Office of Budget Responsibility, Britain’s financial watchdog. That is the largest decline in living
standards since the government began keeping records in 1956.
“Anyone who says there are easy answers is not being honest with the British people,” Hunt said in a closely watched address to Parliament. “We want low taxes and sound money, but Conservatives know sound money must come first.”
Rarely in modern British history has a budget loomed so large. In addition to a recession, which Hunt confirmed Thursday, the country is suffering from double-digit inflation — 11.1% in October — as well as soaring fuel prices and rising interest rates.
The reverberations are being felt in the daily lives of Britons. Some people have delayed heating their homes; others don’t know how they will pay the higher monthly costs of their mortgages.
As Hunt spoke, the House of Commons veered between tense silence as lawmakers digested the measures and raucous protests from the opposition benches when the chancellor claimed that Britain’s woes were largely a legacy of the pandemic and of the disruption caused by Russia’s invasion of Ukraine.
Hunt tried to cushion the blow to Britons by announcing an increase in the national living wage, which protects lower- income workers, to $12.35 an hour, from $11.26. He also unexpectedly announced $2.7 billion in extra funding for schools, as well as $3.9 billion in additional funding in 2023 and 2024 for the revered National Health Service.
As expected, the government increased and extended a windfall-profits tax on energy providers, which have reaped record profits on skyrocketing oil and gas prices in the wake of Russia’s invasion of Ukraine. Hunt also imposed a windfall tax on electricity generators and confirmed that Britain will build a new nuclear power plant to diversify energy sources.
Many of the spending cuts will not take effect for two years, pushing them off until after the next general election, which Sunak must call by January 2025. That puts the opposition Labor Party in something of a quandary. With a double- digit lead in polls over the governing Conservatives, Labor could vault into power only to inherit seriously depleted public services.
“They’ve effectively laid a trap for Labor,” said Mujtaba Rahman, an analyst at the political risk consultancy Eurasia Group. “This is a very political chancellor implementing a very political austerity plan.”
Labor leaders tried to turn the tables on the government, arguing that the economic pain had been deepened by the mismanagement of Truss and Kwasi Kwarteng, who served as her chancellor but was fired by Truss.
Still, many of Hunt’s measures had been telegraphed by the government, and the markets largely shrugged off his address. The British pound, which had risen in advance of the speech, fell slightly, to $1.18.