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of Great Britain, Jeremy Hunt, leaves 11 Downing Street to attend Parliament in London, Thursday, November 17, 2022. Just three weeks after taking office, British Prime Minister Rishi Sunak faces the challenge of balancing the nation's budget while helping millions of people hit by a cost of living crisis. Treasury chief Jeremy Hunt will outline the government's plan to tackle a struggling economy in a speech to the House of Commons on Thursday. (AP Photo/Alastair Grant)
LONDON (AP) — Millions of people across Britain face higher taxes and energy bills after the government on Thursday announced an emergency budget focused on restoring the country's financial credibility and bolstering an economy hit by inflation growing.
Treasury chief Jeremy Hunt unveiled a £55 billion (US$65 billion) package of tax rises and spending cuts designed to demonstrate Britain is committed to paying its bills after his predecessor spooked markets financial institutions by proposing tax cuts without saying how they would be paid for. .
© Provided by the Associated Press People walk on Regent Street in London, Thursday, November 17, 2022. The British government on Thursday released an emergency budget with billions in tax increases in a bid to restore confidence and stability in the UK economy and help millions struggling to cope with a deepening cost of living crisis. (AP Photo/Kin Cheung)
Hunt tried to cushion the blow by promising to protect the most vulnerable, announcing he would increase social benefits and state pension payments in line with inflation and help low-income residents with their energy bills. The government will also maintain investment in energy and infrastructure projects to boost economic growth, he said.
© Provided by the Associated Press Britain's Chancellor Jeremy Hunt leaves 11 Downing Street to attend Parliament in London, Thursday, Nov. 17, 2022. Just three weeks after taking office, the British prime minister Rishi Sunak faces the challenge of balancing the nation's budget while helping millions of people hit by a cost of living crisis. Treasury chief Jeremy Hunt will outline the government's plan to tackle a struggling economy in a speech to the House of Commons on Thursday. (AP Photo/Alastair Grant)
Still, the government watchdog has warned that Britons face a painful 7% fall in living standards over the next two years.
“The British people are tough, inventive and ingenious. We have faced greater challenges before,” Hunt told the House of Commons. “We are not immune to these headwinds, but with this plan for stability, growth and public services, we will weather the storm.”
Hunt and Prime Minister Rishi Sunak, who took office less than a month ago, face the challenge of fighting inflation and a growing deficit while helping millions of people hit by a cost-of-living crisis as Russia wars in Ukraine pressures food and energy prices.
That task was made more difficult by former Prime Minister Liz Truss, who in September announced £45 billion (US$53 billion) in unfunded tax cuts that drove the pound to a record low against the US dollar, increased the costs of government loans and forced the central bank to intervene to stabilize bond markets. Truss was forced to resign six weeks after taking office.
© Provided by the Associated Press Anna Sjovorr-Packham prepares food at the community pantry in Vauxhall, London, Wednesday, November 16, 2022. Just three weeks after taking office, British Prime Minister Rishi Sunak faces the challenge of balancing finances while helping millions of people hit by a cost-of-living crisis as Russia's war in Ukraine raises energy prices and slows economic growth. Treasury chief Jeremy Hunt will outline the government's plan to tackle a struggling economy in a speech to the House of Commons on Thursday. (AP Photo/Frank Augstein)
The biggest criticism was that Truss's policies were introduced before being reviewed by the independent Office for Budgetary Responsibility, a mistake that Hunt and Sunak took pains to avoid.
The agency said Hunt's proposals would help slow inflation, boost economic growth and control government spending over the next five years.
Still, rising prices will reduce real wages and living standards by 7% over the next two years, even as the government spends an additional £100 billion on support programmes, the OBR said in its analysis of the budget and the state of the economy. economy. .
© Provided by the Associated Press Customers queue with empty bags as they wait for the community pantry to open in Vauxhall, London, Wednesday, November 16, 2022. Just three weeks after taking office, British Prime Minister Rishi Sunak faces the challenge of balancing the country's finances while helping millions of people hit by a cost-of-living crisis as Russia's war in Ukraine raises energy prices and slows economic growth. Treasury chief Jeremy Hunt will outline the government's plan to tackle a struggling economy in a speech to the House of Commons on Thursday. (AP Photo/Frank Augstein)
“This kind of contraction has never been recorded in post-war British history,” said Barret Kupelian, senior economist at PwC.
Falling incomes, rising interest rates and falling house prices will tip the economy into a recession that will last more than a year, from the third quarter of this year until mid-2023, the OBR predicted. A recession is a prolonged period of economic contraction, often defined as two consecutive quarters of production contraction.
Britain does not have an independent body that declares recessions like the US and Europe, which use other data such as rising unemployment and job losses in their assessments.
© Provided by Associated Press A customer casts a shadow as she waits for the community pantry to open in Vauxhall, London, Wednesday, Nov. 16, 2022. Just three weeks after taking office, British Prime Minister Rishi Sunak rises to the challenge of balancing the country's finances while helping millions of people hit by a cost-of-living crisis as Russia's war in Ukraine raises energy prices and slows economic growth. Treasury chief Jeremy Hunt will outline the government's plan to tackle a struggling economy in a speech to the House of Commons on Thursday. (AP Photo/Frank Augstein)
The OBR said UK unemployment is likely to rise to 4.9% in the third quarter of next year, from 3.5% now. Inflation, which hit a 41-year high of 11.1% in October, will fall sharply next year, falling below zero mid-decade before returning to the Bank of England's target of 2% in 2027, it predicted.
© Provided by the Associated Press Britain's Chancellor Jeremy Hunt leaves 11 Downing Street to attend Parliament in London, Thursday, Nov. 17, 2022. Just three weeks after taking office, the British prime minister Rishi Sunak faces the challenge of balancing the nation's budget while helping millions of people hit by a cost of living crisis. Treasury chief Jeremy Hunt will outline the government's plan to tackle a struggling economy in a speech to the House of Commons on Thursday. (AP Photo/Kin Cheung)
The bleak economic picture is weighing on government finances, reducing tax revenue, increasing social assistance spending and increasing borrowing costs. As a result, the OBR estimates that government borrowing will increase by a third to £177 billion, or 7.1% of economic output, in the current financial year.
Lending will begin to decline after that, dropping to 2.4% of gross domestic product in fiscal 2027-28. This means government debt will rise to a 63-year high of 98% of GDP over the next three years before starting to decline, the OBR predicts.
© Provided by the Associated Press A woman rides her bicycle in London, Thursday, November 17, 2022. The British government on Thursday released an emergency budget with billions in tax increases in a bid to restore confidence and stability in the UK economy and help millions struggling to cope with a deepening cost of living crisis. (AP Photo/Kin Cheung)
In an effort to close the gap, Hunt said he would ask for “more from those who have more” and reduce the threshold for the highest tax bracket – 45% – by almost £25,000 a year, costing those earning the most around £1,200 annually .
The government will also freeze the income levels at which taxpayers move into higher tax brackets, effectively raising taxes on hundreds of thousands of workers as inflation drives up their wages.© Provided by The Associated Press Volunteers pack boxes of food for customers at the community pantry in Vauxhall, London, Wednesday, Nov. 16, 2022. Just three weeks after taking office, British Prime Minister Rishi Sunak faces the challenge of balance finances while helping millions of people hit by a cost-of-living crisis as Russia's war in Ukraine raises energy prices and slows economic growth. Treasury chief Jeremy Hunt will outline the government's plan to tackle a struggling economy in a speech to the House of Commons on Thursday. (AP Photo/Frank Augstein)
“This, coupled with a double whammy of high inflation and higher taxes, could mean a potential pay cut rather than a pay rise,” said Faye Church, an accredited financial planner at Investec Wealth & Investments.
The government also bowed to public pressure to increase taxes on energy producers' huge profits. Hunt raised the windfall tax on oil and gas companies from 25% to 35% and extended it until March 2028. Electricity companies will have to pay a new temporary tax of 45%.
© Provided by The Associated Press Volunteers pack boxes of food for customers at the community pantry in Vauxhall, London, Wednesday, Nov. 16, 2022. Just three weeks after taking office, British Prime Minister Rishi Sunak faces the challenge of balance finances while helping millions of people hit by a cost-of-living crisis as Russia's war in Ukraine raises energy prices and slows economic growth. Treasury chief Jeremy Hunt will outline the government's plan to tackle a struggling economy in a speech to the House of Commons on Thursday. (AP Photo/Frank Augstein)
Hunt said taxes would raise a total of £14 billion next year.
He promised to protect public spending in key areas such as health and education, as well as investments in energy and infrastructure projects. He postponed major spending cuts until 2025 – after the next general election – and postponed important decisions such as fulfilling the previous government's promise to increase defense spending to 3% of economic output.
© Provided by the Associated Press Britain's Chancellor Jeremy Hunt leaves 11 Downing Street to attend Parliament in London, Thursday, Nov. 17, 2022. Just three weeks after taking office, the British prime minister Rishi Sunak faces the challenge of balancing the nation's budget while helping millions of people hit by a cost of living crisis. Treasury chief Jeremy Hunt will outline the government's plan to tackle a struggling economy in a speech to the House of Commons on Thursday. (AP Photo/Alastair Grant)
Pensioners and people on social benefits will see their payments rise in line with inflation, while millions of minimum wage workers will see a 9.7% increase in April, Hunt said.
Millions of homes face higher energy bills, however, as a price cap rises from £2,500 a year for the average household to £3,000 in April.
Hunt said he would soften the blow by increasing support payments for low-income families and people with disabilities.
© Provided by the Associated Press People walk on Regent Street in London, Thursday, November 17, 2022. Millions of Britons face higher taxes and higher energy bills after the government announced an emergency budget aimed at restoring the government's economic credibility and shore up the weakened public finances. (AP Photo/Kin Cheung)
Rachel Reeves, economics spokeswoman for the opposition Labor Party, said the budget would leave Britain in a “cycle of destruction, where low growth leads to higher taxes, lower investment and reduced wages, with depletion of public services.”
Among those asking the government for help is Magdelena Prosenic, a single mother of two young children who was waiting in line at a community food pantry in south London.
For £5, people can buy 20 items of fresh fruit, vegetables and essentials such as tinned beans and pasta. But the eggs, which have skyrocketed in price, are highly sought after and only available to those who arrive early.
“We receive benefits, but it is difficult to support two children without help,” Prosenic said on Wednesday. “Children need fruit, they need diapers and formula.”
Anna Sjovorr-Packham, who runs the pantry, said the number of families buying food from them is increasing “slowly but steadily.” And the cold winter months are coming, when families need to spend more on heating.
“I think there's already been an idea that people accessing food pantries may need the service as a last-ditch scenario — there may be a stigma about the type of person,” she said. “But now the pantries are definitely used by everyone.”
