As Chancellor Jeremy Hunt announced his fiscal plan today, we examine the impact to the public and the economy in increasingly turbulent times.
On Thursday 17th November, Chancellor of the Exchequer, Jeremy Hunt, announced his fiscal plan to tackle soaring inflation, the cost of living crisis and a recession. With millions of people up and down the country struggling financially, all eyes were on Hunt with many fearing the worst.
In a widespread budget, which included personal tax rises, a windfall tax on energy companies, new fiscal rules and an increase in education spending, Hunt said that the country wouldn’t be able to “borrow its way to growth”.
The new budget aims to recuperate £55bn, which Hunt believes will result in inflation and interest rates being “significantly lower”. Prior to announcing his budget to the House of Commons, Hunt had received approval from the Office for Budget Responsibility (OBR), who believe that the plan will make the recession shallower.
The key announcements from the budget are as follows:
Reducing the higher rate threshold
As the government seeks to raise £55bn, it was obvious that tax rises were going to come into play. Hunt confirmed that he wanted to raise this capital in a balanced way, with half of it coming from tax and half of it coming from spending, with those who earn the most expected to pay more.
As such, one of the headline policies from the budget is the decision to reduce the threshold for the higher rate of income tax. Under Hunt’s plan, those who earn an annual salary of £125,140 will now be obliged to pay the 45p rate, whereas previously the threshold was at £150,000.
This lowering of the threshold means that those who do earn £150,000 or more will now pay over £1200 more a year.
In addition to this top rate threshold reduction, the Chancellor also announced that the threshold for income tax personal allowance would be frozen until 2028. This means that even as people receive pay rises with inflation, tax bands will stay the same meaning they will be paying more out in tax. As a result, these pay rises won’t feel as beneficial as they should.
A further tax cut in the budget means that the annual exempt amount for capital gains tax will be £6,000 next year, down from £12,300. In 2024, this figure will sink further to £3,000.
Windfall tax on energy companies
In what many people will perceive to be a subtle dig at his predecessor, Hunt announced that he has “no objection” to windfall taxes. With energy bills rising and energy companies recording substantial profits, Hunt backed up this statement by announcing a 10% increase on the energy profits levy from 25% to 35% from 1st January to 28th March next year.
On top of this increase, Hunt also announced a temporary 45% levy on electricity generators because “the structure of our energy market creates windfall profits for low carbon electricity generation.”
These two measures combined will raise a total of £14bn next year, a substantial chunk of the £55bn total mentioned at the start of his speech.
Energy support to be reduced
One of the biggest cost of living issues that millions of people are facing at this moment in time is the soaring cost of energy bills. When Liz Truss became Prime Minister she announced a scheme that would support everyone in the country with their energy bills for two years.
Jeremy Hunt has said that he will stick to Truss’ plan to spend £55bn to help households and businesses with their energy bills but will roll it out in a more targeted way.
As a result, from April, the average household will be paying £3000 a year on their energy bills, which is £500 less than the amount Liz Truss promised.
Pensions and benefits to rise with inflation
Despite refusing to commit to the pensions triple lock prior to his budget announcement, Jeremy Hunt did announce that pensions will rise in line with September’s inflation rate of 10.1%. Those people who qualify for Universal Credit will also see their income rise in line with the same rate of inflation.
The triple lock conundrum was of great debate before the budget announcement. If Hunt had gone back on the policy then he would have been breaking a manifesto pledge that the state pension would rise in with inflation each September.
It was a bleak day for everyone in the United Kingdom, as we came to realise how deep of a financial hole we are in. And while Jeremy Hunt is keen to blame the recession on Putin’s war in Ukraine, it’s hard to argue with Shadow Chancellor, Rachel Reeves, when she says that everyone in Britain is “sick of being ripped off by the Tories.”