UK unveils austerity budget with major tax hikes, spending cuts despite recession

Despite the downturn, Hunt and Prime Minister Rishi Sunak insist tough action is needed after Truss unleashed a package of unfunded tax cuts that caused panic on financial markets.

The pound hit a record-low against the dollar in late September after Truss failed to reveal the impact of her tax cuts on growth and inflation.

Hunt's budget did the opposite, confirming that as well as the UK being in recession, its economy would contract 1.4 percent next year.

The Bank of England, which is raising interest rates to combat sky-high inflation, has warned the UK economy may experience a record-long recession until mid-2024.

Despite the grim outlook, Hunt on Thursday confirmed tax rises for workers alongside spending cutbacks.

However, he pledged to increase spending on the cherished National Health Service amid a severe backlog in patient operations.

Hunt also ramped up a windfall tax on oil and gas giants, whose profits have surged on fallout from the Ukraine war, to help fund support for the poorest consumers facing rocketing energy bills.

Energy giants such as BP and Shell will face an exceptional tax on profits of 35 percent, up from 25 percent, last an additional three years to 2028.

The government will also impose a new temporary levy on electricity generation companies.

The Ukraine war has helped push worldwide inflation to its highest levels in decades. Prices are also up on supply constraints fuelled by the Covid pandemic.

Britain's economy is additionally being impacted by Brexit, Bank of England governor Bailey and fellow BoE rate-setter Swati Dhingra told MPs Wednesday.

- Scrooge -
Hunt at the weekend likened himself to the penny-pinching miser Ebenezer Scrooge in Charles Dickens' festive favourite "A Christmas Carol", but argued that his plan will "make sure Christmas is never cancelled".

Hunt insisted that, thanks to his measures, the downturn would be "shallower", shrugging off concerns that tax hikes and spending cuts could deepen the downturn.

Hunt told MPs: "In the face of unprecedented global headwinds, families, pensioners, businesses, teachers, nurses and many others are worried about the future.

"So today we deliver a plan to tackle the cost-of-living crisis and rebuild our economy."

It comes as UK workers across various sectors have gone on strike this year to demand pay rises to compensate for surging inflation.

State-employed nurses and firefighters could be the latest groups to carry out industrial action, joining further walkouts this winter by rail workers and postal staff.

Hunt has already set about reversing Truss's much-criticised budget by curtailing a freeze in domestic fuel bills, which have surged largely owing to the invasion of Ukraine by major energy producer Russia.

Helping to stabilise markets, he also reversed her plan to cut tax on company profits.