UK enters recession as Government announces tax rises
Britain’s economy is already in recession and set to shrink by 1.4% next year after the fiscal watchdog slashed growth forecasts due to rampant inflation.
The Office for Budget Responsibility (OBR) has said it expected UK gross domestic product (GDP) to slump as it significantly downgraded previous projections that the economy would actually grow by 1.8% in 2023. However, it has slightly upgraded the total economic growth expected this year to 4.2% from 3.8% in the March statement.
The OBR has also predicted that inflation will hit an average rate of 9.1% this year and 7.4% in 2023.
In his autumn statement, Chancellor Jeremy Hunt said the forecasts “confirm that our actions today help inflation to fall sharply from the middle of next year. They also judge that the UK, like other countries, is now in recession.”
Hunt also confirmed in his speech that new spending reductions and tax plans are intended to help address the UK’s fiscal hole. The hole is the extra money needed by the Government in order to meet self-imposed targets to bring down the size of state debt relative to national income.
Hunt told MPs his three priorities were “stability, growth and public services”. He set out a package of £30 billion of spending cuts and £24 billion in tax rises over the next five years.
The Chancellor announced the following measures:
- The threshold at which the 45p top rate of income tax is paid will be reduced from £150,000 to £125,140, although different rates apply in Scotland.
- The income tax personal allowance, higher rate threshold, main national insurance thresholds and the inheritance tax thresholds will be frozen until April 2028, something which will result in more people paying more tax as a result of “fiscal drag” as wages increase.
- Stamp duty cuts announced in former-chancellor Kwasi Kwarteng’s mini-budget will now be time-limited, ending on 31 March 2025.
- R&D tax relief for SMEs deduction rate cut to 86% and the credit rate to 10% but increase the rate of the separate R&D expenditure credit from 13% to 20%.
- Almost two thirds of properties will not pay more in business rates next year. Thousands of pubs, restaurants and small high street stores will reportedly benefit £14bn over the next five years.
- The windfall tax on oil and gas giants will increase from 25% to 35% and a 45% levy on electricity generators will help raise an estimated £14 billion next year.
- Tax-free allowance for capital gains will reduce in 2023-24 from £12,300 to £6,000 and again to £3,000 in 2024-2025.