UPDATED: Britain’s budget: What you need to know

Reading Time: 4 minutes

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%.

TAX

* 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.

PUBLIC FINANCES

* 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.

ENERGY CAP

* 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.

MINIMUM WAGE

* 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”.

POLITICS

* “Our priorities are stability, growth, and public services,” said Hunt. “We also protect the vulnerable because to be British is to be compassionate.”

MARKETS

* 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)

A pro EU protester demonstrates against the cost of living crisis outside the parliament in London, Britain. UK inflation has risen to new forty year high to 11.1 percent driven by increasing food and energy costs. EPA-EFE/ANDY RAIN

Once you're here...

%d bloggers like this: