Chancellor Jeremy Hunt confirmed the UK was already in recession on Thursday, as he unveiled a £55bn package of higher taxes and spending cuts in his first autumn budget.
Citing “unprecedented global headwinds”, Hunt said the Office for Budget Responsibility had said the UK was already in recession.
Addressing fellow MPs in the House of Commons, he said the government’s priorities were “stability, growth and public services” and that the budget was intended to “tackle the cost of living crisis and rebuild our economy”.
Although taxes were not directly increased, the level at which people pay the 45p rate of income tax will be cut to £125,140 from £150,000. It is thought the move will pull around 250,000 people into the top rate.
The income tax personal allowance threshold will be frozen until 2028, which is likely to push millions of taxpayers into higher rates because of inflation.
Energy companies, meanwhile, will face an extension of the windfall tax on excessive profits. The 25% tax was introduced amid considerable political pressure in May by then chancellor and current prime minister Rishi Sunak. Hunt said that would now increase to 35%, and be extended until 2028.
A temporary 45% levy will also be introduced on electricity generators.
Turning to spending, Hunt said there will be squeezes across all government departments, which will need to take “tough decisions to deal with inflationary pressures in the next two years”.
However, he said that overall spending on public services would rise for the next five years, after accounting for inflation. The health budget would also be protected.
The OBR forecast that UK GDP would shrink by 1.4% next year before growing by 1.3% in 2024, while unemployment is expected to rise from 3.6% to 4.9% in 2024.
