Skyrocketing prices for food and energy, along with higher interest rates, are pushing the British economy into recession
London (AFP) - The UK’s new government on Friday unveils multi-billion-pound measures aimed at supporting households and businesses hit by the highest inflation in decades.
Finance minister Kwasi Kwarteng, fresh from being appointed by new Prime Minister Liz Truss, will deliver a budget package at 0830 GMT.
Kwarteng on Thursday said he would scrap a tax on salaries recently implemented by his predecessor Rishi Sunak – and will reveal the cost of the new government’s plan to cap energy bills for households and business.
It comes as the Bank of England warns that Britain is slipping into recession, as rocketing fuel and food prices take their toll.
“Taxing our way to prosperity has never worked,” Kwarteng said Thursday after reversing a 1.25-percentage-point rise in National Insurance (NI).
“To raise living standards for all, we need to be unapologetic about growing our economy.
“Cutting tax is crucial to this,” the chancellor of the exchequer added.
Britain in April hiked the NI salary tax to help fund social care but this will be reversed in November.
Kwarteng is similarly expected to scrap a plan to increase tax on company profits that was signed off by Truss’s predecessor Boris Johnson.
The finance minister could also axe a bankers’ bonus cap in place since 2014 and a legacy of EU membership, according to reports.
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.
While the tax reversals are not strictly cuts, the government could announce Friday reduced levies on home purchases.
Barclays bank estimates the cost of the government’s total package could hit £235 billion ($267 billion), far more than its jobs protection scheme during the pandemic.
- Capping energy bills -
Britain on Wednesday 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 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 invasion of 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 launched by Sunak earlier this year.
But Truss ruled out such a move, arguing that additional taxes 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 was set to confirm Friday.
Kwarteng has described the policy as a “win-win”, pitching it as a way to fill 1.2 million UK job vacancies.
- Strikes, rate rises -
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, tens of thousands of workers are carrying out industrial action aimed at securing bigger salaries.
Soaring interest rates aimed at cooling sky-high inflation are meanwhile hurting consumers and businesses, as well as pushing up the cost of government borrowing.
The Bank of England on Thursday ramped up its key rate by another half-point to 2.25 percent, and warned the UK would slide into recession in the current third quarter.