Britain unveils anti-inflation budget as recession looms

Analysts from British bank Barclays estimate that the cost of the government's total package could hit £235 billion ($267 billion)



Photo: @KwasiKwarteng/Twitter
Photo: @KwasiKwarteng/Twitter

By AFP

Published: Fri 23 Sep 2022, 1:51 PM

On Friday, the UK's new government will unveil multi-billion-pound measures aimed at supporting households and businesses hit by decades-high inflation.

Finance minister Kwasi Kwarteng, fresh from being appointed by new Prime Minister Liz Truss, will deliver his mini-budget at 08.30 GMT.

Kwarteng announced late on Thursday that he would scrap Truss' predecessor Boris Johnson's plan to hike taxes on salaries.

The news came after the Bank of England (BoE) warned that Britain was slipping into recession, as rocketing fuel and food prices extracted their toll.

"Taxing our way to prosperity has never worked," the Chancellor of the Exchequer said.

"To raise living standards for all, we need to be unapologetic about growing our economy. Cutting tax is crucial to this," he added.

He is similarly expected to reverse Johnson's planned tax increase on company profits.

On Friday, Kwarteng will also outline the cost of a decision to cap energy bills.

He could axe a bankers' bonus cap, which has been in place since 2014, and is a legacy of EU membership.

Truss took office on September 6 — two days before the death of Queen Elizabeth II — after winning an election of Conservative party members on a tax-cutting platform.

Photo: @KwasiKwarteng/Twitter
Photo: @KwasiKwarteng/Twitter

While the tax reversals are not strictly cuts, the government could announce reduced levies on home purchases, on Friday.

Analysts from British bank Barclays estimate that the cost of the government's total package could hit £235 billion ($267 billion): far more than its jobs protection scheme during the pandemic.

On Wednesday, Britain had announced a six-month plan to pay about half of energy bills for businesses.

Truss had already launched a two-year household energy price freeze. The caps will not kick in, however, until Britons face another large hike in gas and electricity bills at the start of October.

The average household will have their annual energy bill capped at £2,500 until 2024, but many are expected to spend above that to keep their homes warm over the winter.

Wholesale electricity and gas prices for firms — as well as charities, hospitals and schools — will be capped at half the expected cost on the open market.

UK energy companies, including BP and Shell, will not benefit from the cap, as they enjoy soaring profits after the attack on Ukraine by major oil and gas producer Russia.

Britain's main opposition Labour party has demanded that the government extends a windfall tax on energy companies that former finance minister Rishi Sunak launched earlier this year.

However, Truss ruled out such a move, arguing that additional taxes would hinder economic recovery and efforts by energy groups to transition into greener companies.

Growth is at the heart of the new government's policy, with Kwarteng on Wednesday outlining plans to shake up the welfare system.

Some 120,000 people in part-time work could face a benefit cut, should they fail to take new steps to look for more work, he is set to confirm.

Kwarteng has described the policy as a "win-win", pitching it as a way to fill 1.2 million UK job vacancies.

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With prices rocketing, wage values are eroding, triggering some of the biggest strike action Britain has seen in more than 30 years.

From the rail sector to postal services and even lawyers, thousands of workers are carrying out industrial action aimed at securing bigger salaries.

In addition, soaring interest rates are hurting consumers and businesses.

The cost of government borrowing is also ballooning as a result.

On Thursday, the Bank of England ramped up its key rate by another half-point to 2.25 percent to tackle high inflation, and warned that the UK would slide into recession in the current third quarter.


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