British Finance Minister Jeremy Hunt announced a strict new tax plan on November 17. The changes include tax increases for citizens and businesses, as well as a more austere approach to public spending. The new measures were announced in the midst of dizzying inflation and after the Office of Budgetary Responsibility (OBR) pointed out that the country has entered a recession.
The UK is already in recession and inflation continues to rise. Two scenarios that the British Government tries to weather with the new tax plan presented this Thursday, November 17.
Finance Minister Jeremy Hunt publicly announced the new budget program, which mainly focuses on raising taxes and cutting public spending.
The collection of higher taxes will take place both for companies and for citizens.
The new plan under Prime Minister Rishi Sunak is a departure from the legacy of her predecessor, Liz Truss, whose proposed tax cuts roiled markets and sent sterling on the ropes.
“Tackling inflation is my absolute priority and that guides the difficult tax and spending decisions we will make,” said new Finance Minister Jeremy Hunt, as he tried to reassure markets about Britain’s reliability.
This movement, Hunt pointed out, is due to the fact that in recent years “the economy has faced two huge shocks”, the pandemic and the war in Ukraine. Together they ended growth and created a new energy context of skyrocketing prices.
Below are the main measures of the new fiscal plan.
More taxes for citizens
Britons with income from 125,140 pounds sterling, and not from 150,000 pounds sterling as it works up to now, will have to pay the highest band of income tax, 45%.
This is a maximum rate that the previous Truss Administration tried unsuccessfully to abolish.
In addition, the Government will freeze until April 2028, instead of increasing, the proportion of tax-free earnings, in order to include more taxpayers in the coming years.
On the other hand, Hunt reported that from 2023 the amount of shareholders’ dividends from which they must pay taxes will be reduced from 2,000 to 1,000 pounds sterling.
That profit threshold for levy payments will be £500 from 2024.
Likewise, and due to the fact that electric cars are increasingly common, the Finance Minister announced that they will no longer be exempt from vehicle taxes as of April 2025.
Hunt explained that his plan has three fundamental pillars to beat the economic crisis: financial stability, growth and defense of public services, while protecting the most vulnerable groups, including pensioners.
However, amid a high cost of living and with the new rules, citizens are faced with paying more income taxes.
The head of the Finance portfolio stressed that inflation is the “enemy” of stability and pointed out that it could cause social outbreaks. He noted that other nations are also facing sharp increases in the cost of living such as Italy and Germany.
Taxes for companies
The tax on the profits of energy, oil and gas companies will increase from 25% to 35% from January 2023 and will last until March 2028.
There will also be a new temporary 45% tax on windfalls or extras for electricity producers, including wind, solar and nuclear.
Hunt indicated that these changes will raise 14 billion pounds next year.
Depending on how it is implemented, green energy companies could end up paying more in taxes than fossil fuel producers, experts said after the announcement.
A possible scenario that would be counterproductive in the face of the challenge of global warming, since clean energy is the solution to both the energy and climate crises, while oil and gas companies can obtain 91% tax rebates by investing in more hydrocarbons, as stipulated.
Separately, the government will reduce the tax on commercial rates on company premises, but will begin a reassessment of commercial properties from April to ensure that the tax reflects the value of the properties.
“There is a global energy crisis, a global inflation crisis and a global economic crisis. But today with this plan for stability, growth and public services, we will weather the storm. We do it with British resilience and British compassion,” Hunt defended.
Reduction of government expenses
Another of the main focuses of the new fiscal plan is austere public spending, with which the Government cuts 55,000 million pounds sterling.
With this goal, the Sunak Executive hopes to reduce the net debt of the State, balance the country’s finances and offer confidence to the financial markets.
However, Hunt explained that state investment, which includes aid, now reduced, to the energy bill, will continue to increase “in real terms” over the next five years, “but at a slower pace”, and maintained that public services will be prioritized basic.
His Administration would maintain the so-called triple lock, which guarantees that the state pension will increase according to inflation, average income or 2.5%, whichever is stronger.
The budget for international cooperation will remain at 0.5% of GDP introduced in the pandemic and the National Health Service (NHS) will have to look for savings, although it will obtain an investment of 1,000 million pounds this year, along with 1,700 million pounds for social care.
In addition, the minister assured that the national wage will increase from £9.50 an hour to £10.42 from April 2023.
This 9.7% increase is “the largest ever seen in the UK national living wage”, said Jeremy Hunt.
UK enters the dreaded recession
On the same day that the country learned about the new fiscal program, the Office for Budgetary Responsibility (OBR), which oversees the public accounts of the United Kingdom, estimated that the country has entered a recession and that British inflation this year will be at 9.1%.
The OBR, which has linked the sharp increase in inflation to the rise in energy prices globally, calculates that by 2023 the increase in the cost of living will stand at 7.4%.
As Hunt emphasized during his statement before the House of Commons, in which he presented the new plan, it is foreseeable that in 2022 the gross domestic product (GDP) will increase 4.2% in 2022, but then it will fall 1.4%. in 2023.
The Office for Budgetary Responsibility calculates that the unemployment rate in the United Kingdom will go from the current 3.6% to 4.9% in 2024 and could drop to 4.1% in 2025.
Hunt has insisted that inflation eats away at the local currency in people’s pockets, “even more than taxes”, so his fiscal plan is split almost evenly between tax collection and public spending cuts.
The minister said that the measures announced this Thursday are difficult but necessary to reduce the inflationary effects, help control energy costs and return to the path of growth.
With Reuters and local media
#main #measures #tax #plan
