The economy of Britain is in recession, the Office for Budget Responsibility has judged, as contained in the Autumn Statement 2022. An economy being in a recession means it has slowed for two quarters in a row.
The size of the British economy is also predicted to shrink by 1.4% in 2023 and its government has given itself five years to hit debt and spending targets, instead of three years currently.
The announcement of the recession comes after inflation rocketed to a 41-year high of 11.1% in October, due to surges in the cost of energy and food.
This is the second time in two years that the British economy has gone into recession, with the first happening in 2020 at the height of the Covid pandemic.
The Chancellor of the Exchequer, Jeremy Hunt, yesterday unveiled the contents of the government’s Autumn Statement in the House of Commons, a statement that showed tax raises and spending cuts.
The new spending reduction and tax measures are aimed at securing an extra £55 billion to help address the country’s fiscal gap. The government will cut spending by £30 billion and increase taxes to secure £25 billion.
TAXES
In the 2022 Autumn Statement, the income tax personal allowance and higher rate thresholds were frozen for another two years, until April 2028.
Also, the main national insurance and inheritance tax thresholds are frozen for another two years, until April 2028.
Further, tax-free allowances for dividend and capital gains taxes will also be cut next year and in 2024.
Local Councils in England will be able to hike council tax up to 5% a year without a local vote, instead of the current 3%, the Chancellor has said.
ENERGY
The UK has increased its energy bills, according to the Autumn Statement Hunt presented yesterday.
Now, the household energy price cap has been extended for one year beyond April but made less generous, with typical bills capped at £3,000 a year instead of £2,500.
In addition, the windfall tax on oil and gas profits has been raised from 25% to 35% and extended until March 2028, and a new 45% tax on companies that generate electricity beginning in January.
On government spending, the UK has reduced its overseas aid spending to 0.5% for the next five years. This is below the official target of 0.7%. The lifetime cap on social costs in England, due in October 2023, will be delayed by two years.
Meanwhile, the Chancellor blamed the economic downturn on “global headwinds” and the Russian invasion of Ukraine, which have sent energy and food prices soaring.
The chancellor insisted that the tax raises and spending cuts were required by an international crisis and refuted the idea that any of the problems were homegrown.
He said, “It is a recession made in Russia, a recovery made in Britain.”
According to the UK daily newspaper, The Financial Times, Britain’s economic recovery from the depths of the pandemic has fallen short of its rivals.
It says figures collated by the OECD found that the UK economy was still 0.4 percent smaller in the third quarter of this year than in the final quarter of 2019; the Eurozone was 2.1 percent larger and the US was 4.2 percent bigger.
