The Sunak Government admits that the United Kingdom is in recession and announces a general increase in taxes | International
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The first step to solving a problem is to acknowledge its existence, and the UK Chancellor of the Exchequer, Jeremy Hunt, has avoided any hot flashes by starting on Thursday to outline a tax plan that will entail a sweeping tax hike and spending cuts. public. The country has entered a recession, and will remain in it throughout 2023, Hunt has admitted. “The Office of Budgetary Responsibility [OBR, en sus siglas en inglés] It has come to the conclusion that we are already in recession, and that the economy will shrink by 1.4% next year before returning to growth in 2024,” said the minister.
To compensate for a fiscal hole of more than 60,000 million euros, aggravated after the failed tax cut announced by the previous government of Liz Truss, the new Executive of Rishi Sunak has been forced to announce a general tax increase, which it will try to cover almost half of that hole. The other half will have to be corrected with cuts in public spending that have led many economists to baptize the coming period as Austerity 2.0in memory of the era of restrictions on public services that followed the financial crisis of 2008. The measures proposed this Thursday are to place the tax burden in the United Kingdom at the highest level since World War II.
Hunt has lowered the level of income from which the British must pay the maximum rate of personal income tax of 45%. From the current 150,000 pounds (about 170,000 euros) it will go to 125,140 pounds (143,000 euros, at the current exchange rate). But, above all, the greatest tax collection expected by the Sunak government will come from what is known in the jargon as “invisible taxes.” By freezing the exempt minimum until 2028 —and not updating it to the level of inflation that is already at 11.1%—, both in income tax, inheritance tax or social security contributions, overall revenue may increase by billions, with an expected average wage increase in the private sector of around 6%.
Many workers will begin to pay the minimum rate of 20% when they exceed 12,570 pounds per year, and many others will pay 40% when they exceed the threshold of 50,000 pounds. The OBR estimates that the measures will cause the number of taxpayers to increase by 2.6 million. The Minister of Economy has also announced a reduction in the minimum exemption in capital gains, from 12,000 pounds (13,700 euros) to 6,000 (6,800 euros) in 2023, and 3,000 (3,400 euros) in 2024. In total, the British Government tax collection, according to announced plans, will increase by 28.5 billion euros.
Sunak recovers the tax on energy companies for extraordinary profits (windfall tax, windfall benefits) earned from the Ukrainian war, which its predecessor Truss eliminated. “From next January 1 to March 28, we will increase that tax from 25% to 35%. Similarly, we will also tax the windfall profits of low-carbon electricity generating companies with an additional 45%,” Hunt announced.
These taxes will make it possible to compensate for the decision, also incorporated into the fiscal plan, to extend for another year, starting next April, direct aid to families and companies to deal with gas and electricity bills, although, as Hunt has admitted, the subsidies will be less generous and more selective, to help above all the most vulnerable citizens. If with the current plan the Government guaranteed that no household would pay an annual average of more than 2,800 euros for energy, the limit is now raised to 3,400 euros, and specific direct aid is allocated to people who live thanks to social subsidies, pensioners and citizens with permanent disability leave.
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The minister has used the OBR report that accompanied his tax plan to announce that electric vehicles will no longer be exempt from road tax as of April 2025. “By then, half of the cars on the road will The UK will be electric, so to make our motor vehicle tax regime more fair, I have decided to end that exemption,” Hunt explained. The incorporation, in any case, will be progressive, and the amount to be paid will increase year by year. In any case, British dealers have already expressed their discomfort at a measure that, they anticipate, will discourage the transition to electric vehicles.
Minimum wage increase
The British Government, aware of the electoral cost that a return to austerity can entail at a time when citizens are suffering from a cost-of-living crisis, has announced a rise in the minimum wage. The UK measures this figure in pounds/hour, not in monthly terms. Currently, it was 9.50 pounds (10.80 euros) for those over 23 years of age; 9.18 pounds for those 21 and 22; 6.83 pounds (7.80 euros) for those from 18 to 20; and 4.81 pounds (5.50 euros) for those under 18 years of age. Hunt has announced a general increase of 9.7%, which will mean, at the highest level, that the minimum wage is 10.42 pounds per hour (11.90 euros). According to the calculations presented by the minister, the increase will mean that close to two million wage earners in the United Kingdom will earn about 1,800 euros more per year.
Pensions and social benefits
The cut in public spending, which will affect all ministerial departments across the board, means maintaining the budget forecasts for the next two years, which, compared to the current inflation figure (11.1%), mean a reduction in practice. “We are going to maintain an increase in public spending, but it will grow at a slower rate than the economy. The next two years will respect the expected increases, and during the next three years the growth in spending will be only 1%”, Hunt warned.
In return, the government will abide by the “triple lock” on pensions, which the Conservatives pledged to keep in their 2019 election programme. Under this rule, public pensions must rise according to the highest of these three options: inflation (10.1%, according to the data for September, to which Downing Street clings); the average salary increase in private companies (6%), or 2.5% agreed by the parties. Pensions, and social aid and subsidies, Hunt has announced, will rise at the rate of the CPI. It could not be otherwise with two hard years ahead before the next electoral appointment, scheduled for the end of 2024. The OBR report that has accompanied the Government’s fiscal plan anticipates a 7% decline in the standard of living of an average British family in the next two years.
The opposition, which suspects that part of the commitments announced by Hunt could end up being inherited by a future Labor government, has demanded that it not hide behind the global crisis -pandemic, Ukraine, crisis in the supply chain…- and apologize for the management of a decade of the conservatives in power. “It presents us with the bill for the economic carnage caused by this very government,” said Labor spokeswoman for the Economy, Rachel Reeves. “This is basically the job of a pickpocket. In just one hour, the Executive has just reached into the wallets and purses of the entire country, through a series of invisible taxes that will end up taking billions of pounds from all workers ”, she denounced.
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