LONDON, Nov 17 (Reuters) – British finance minister Jeremy Hunt announced a string of tax increases and tighter public spending in a tough budget plan on Thursday that he said was needed after the blow dealt to the country’s fiscal reputation by former prime minister Liz Truss.
Following is a snapshot of what he announced and reaction:
GROWTH AND INFLATION
* Hunt said Britain’s economy was forecast by the Office for Budget Responsibility to grow 4.2% this year. It will then shrink by 1.4% in 2023, compared with the OBR’s March forecast of 1.8%. The OBR sees growth of 1.3% in 2024 and 2.6% in 2025, Hunt said, compared with previous projections of 2.1% and 1.8% respectively.
* He said the OBR projected inflation of 9.1% in 2022, a revision from its March forecast of 7.4%, and of 7.4% next year, up from a previously forecast 4.0%.
* Hunt announced plans to freeze income tax allowances and lower the threshold at which people start to pay the highest rate of income tax.
* He said a windfall tax on oil and gas firms would be increased to 35% from its current rate of 25%, and extended to power generation firms at a rate of 45% from Jan. 1.
* Hunt said he would freeze income tax allowances until 2028 and was lowering the threshold above which the 45% top rate of income tax is paid to 125,140 pounds ($148,053) from 150,000 pounds.
* Britain will bring down its government debt as a percentage of economic output within five years under a new fiscal rule, Hunt said, not three years as previously.
He said the government would meet another fiscal rule that the budget deficit will be below 3% of GDP within five years.
* Hunt said public spending would grow more slowly than the economy, but overall spending in public services would rise in real terms over the next five years.
* Hunt said the cost of an average household energy bill would rise to 3,000 pounds ($3,554.70) a year from April after he reined in his predecessor’s vast support package for gas and electricity bills.
* The national minimum wage will increase by 9.7% to 10.42 pounds per hour from April, Hunt said.
BANK OF ENGLAND
* Hunt confirmed the Bank of England’s inflation-fighting remit, adding that the government and Bank should work “in lockstep”.
* “Our priorities are stability, growth, and public services,” said Hunt. “We also protect the vulnerable because to be British is to be compassionate.”
* UK government bond yields, which were already up prior to Hunt’s statement, rose further, with the benchmark 10-year gilt yield GB10YT=RR last up 7 basis points at 3.21%.
* “It’s not fantastic news, but it’s not as bad as the previous mini-budget that had unbudgeted spending followed by a bond sell-off in panic. This is careful financial conservatism, which is reassuring,” said Giles Coghlan, chief market analyst at HYCM in London.
* Money market futures pointed to the Bank of England raising interest rates to a peak of 4.53% by August next year, from 4.59% immediately prior to Hunt’s remarks.
* Sterling GBP=3 recovered from a brief dip against the dollar early in Hunt’s speech and was last at $1.18395, down 0.6% on the day.
* Britain’s blue chip stock index .FTSE was down 0.65% at a session low as Hunt spoke.
(Compiled by Catherine Evans; Editing by Toby Chopra)