Britain is set on Thursday to unveil hefty tax hikes and spending cuts that risk exacerbating a cost-of-living crisis for millions in the recession-hit economy.
A day after official data showed UK inflation soared to a 41-year high above 11 per cent, Chancellor of the Exchequer Jeremy Hunt will usher in a new era of austerity following Prime Minister Liz Truss’s ill-fated and short-lived tenure.
The Chancellor of the Exchequer will insist his strategy “protects our long-term economic growth” while being “compassionate” to the most vulnerable.
“We are not immune to these global headwinds, but with this plan for stability, growth and public services, we will weather the storm,” he is expected to tell parliament, according to the Treasury.
Hunt and Prime Minister Rishi Sunak insist tough action is needed after Truss unleashed a package of unfunded tax cuts that caused panic in financial markets.
“Tackling inflation is my absolute priority and that will drive the tough decisions on tax and spending we will make on Thursday,” Hunt said, as Britain’s Press Association quoted the Treasury as saying the package would be worth 54 billion pounds (64 billion dollar).
Hunt at the weekend likened himself to the miserly miser Ebenezer Scrooge in Charles Dickens’ festive favorite “A Christmas Carol”, but claimed his plan will “make sure Christmas is never cancelled”.
It comes as British workers across sectors have gone on strike this year to demand pay rises to offset rising inflation.
State-employed nurses and firefighters could be the latest groups to take industrial action, joining further strikes this winter by rail workers and postal workers.
Bank of England Governor Andrew Bailey told MPs on Wednesday that he would not take a pay rise this year.
“I would politely decline as I have done in the past,” said the central bank governor, who earns around £575,000 a year.
The BoE says Britain is probably already in recession after its economy shrank in the third quarter and will do so again in the final three months of the year.
The Bank, which is raising interest rates to combat soaring inflation, has warned that the UK economy could experience a record-long recession until mid-2024.
Alongside the tax and spending plans, the government will on Thursday update its forecasts for UK growth and inflation, which is expected to underline the bleak outlook ahead.
Hunt has already started to reverse Truss’s much-criticised budget by easing a freeze on domestic fuel costs, which have risen largely because of the invasion of Ukraine by major energy producer Russia.
To help stabilize the markets, he also changed her plan to cut taxes on corporate profits.
Reports suggest the chancellor will go ahead on Thursday by freezing income tax thresholds, which will see more people drawn into higher brackets.
Hunt has suggested raising council taxes and cutting budgets across government departments.
To help the poorest with skyrocketing energy bills, the government is expected to raise an unexpected tax on oil and gas giants, whose profits have soared due to the fallout from the war in Ukraine.
Hunt is also said to be preparing a windfall tax on companies that produce electricity, whose earnings have also soared this year.
The war in Ukraine has greatly contributed to global inflation reaching the highest levels in decades. Prices are also rising due to pandemic-driven supply constraints.
The UK economy is also affected by Brexit, Bailey and fellow BoE rate setter Swati Dhingra said on Wednesday.
“It is undeniable now that we are seeing a much bigger decline in trade in the UK compared to the rest of the world,” Dhingra told the House of Commons finance committee.