Jeremy Hunt Says UK Must ‘Face Into the Storm’ as He Raises Taxes and Makes £55 Billion Cuts

Jeremy Hunt Says UK Must ‘Face Into the Storm’ as He Raises Taxes and Makes £55 Billion Cuts
Chancellor of the Exchequer Jeremy Hunt, leaves Downing Street following the first Cabinet meeting with Rishi Sunak as prime minister, in London on Oct. 26, 2022. (Victoria Jones/PA)
Chris Summers
Lily Zhou

The Chancellor of the Exchequer, Jeremy Hunt, has warned Britain will need to “face into the storm” in the next year as it faces high energy prices, inflation, and recession.

Unveiling his autumn budget, in which he raised taxes and announced £55 billion of funding cuts, Hunt told the House of Commons: “There may be a recession made in Russia but there is a recovery made in Britain, and we do so today with British resilience and British compassion.”

The Office for Budget Responsibility (OBR) confirmed on Thursday that Britain was officially in recession and that the previous eight years’ growth would be wiped out.

Hunt announced a “substantial tax increase” and said tax as a percentage of GDP would increase by one percent over the next five years.

He said he intended to protect the most vulnerable in society and make the wealthy bear more of the tax burden.

Hunt lowered the threshold for the top rate of income tax—45 percent—from £150,000 to £125,140.

He also extended the freeze on income tax personal allowance, higher rate threshold, main national insurance thresholds, and the inheritance tax thresholds by two years until 2028, meaning more taxpayers would be captured as their income rises with inflation.

The chancellor also lowered the dividend allowance from £2,000 to £1,000 next year and then to £500 from April 2024 and the capital gains tax exemption threshold from £12,300 to £6,000 next year and then to £3,000 from April 2024.

Labour Blames ‘12 Years of Conservative Economic Failure’

Referring to the resignation of former Prime Minister Boris Johnson and then the 49-day reign of Liz Truss, the Labour Party’s shadow chancellor Rachel Reeves said: “The mess we are in is the result of 12 weeks of Conservative chaos but also 12 years of Conservative economic failure.”

Hunt also announced electric vehicles will no longer be exempt from vehicle excise duty, or road tax, from April 2025.

The exemption was designed to encourage people to switch from petrol and diesel cars to electric vehicles but Hunt said: “Because the OBR forecast half of all new vehicles will be electric by 2025, to make our motoring tax system fairer I’ve decided that from then, electric vehicles will no longer be exempt from vehicle excise duty.”

The government will ban the sale of petrol and diesel cars from 2030 and it had been predicted, that if the exemption remained in place, there would be a £35 billion tax gap for the Treasury.

Another important announcement was the postponement, for two years, of reforms to the social care system, based on recommendations proposed by Sir Andrew Dilnot.

Hunt said there would however be an extra £2.8 billion for social care next year and £4.7 billion in 2024–2025.

He also promised an extra £3.3 billion for the NHS in each of the next two years and promised to keep the government’s commitment to spending two percent of GDP on defence.

Hunt replaced Kwasi Kwarteng as Chancellor in October and Thursday’s budget marks a massive change of direction from Truss’s government which had promised, in its mini-budget, massive tax cuts.

The Governor of the Bank of England, Andrew Bailey, told the House of Commons Treasury Committee on Wednesday that individuals from the financial market had told him the City reacted negatively to the mini-budget because the announcement was not accompanied by a forecast from the OBR and they were sceptical about removing the top rate of income tax during the cost-of-living crisis.

The OBR, in its assessment of the UK economy, said: “Rising prices erode real wages and reduce living standards by seven percent in total over the two financial years to 2023–24 (wiping out the previous eight years’ growth), despite over £100 billion of additional government support.”

It added: “The squeeze on real incomes, rise in interest rates, and fall in house prices all weigh on consumption and investment, tipping the economy into a recession lasting just over a year from the third quarter of 2022, with a peak-to-trough fall in GDP of two percent.”

The OBR also predicted unemployment would rise by 505,000 to 4.9 percent in the third quarter of 2024.

PA Media contributed to this report.