Britain’s budget: What you need to know

British finance minister Jeremy Hunt announced a string of tax increases and tighter public spending in a 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 his 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.

* He announced a goal to cut energy consumption by 15% over the next eight years and said Britain would spend an extra 6 billion pounds to meet it.

MINIMUM WAGE

* The national minimum wage will increase by 9.7% to 10.42 pounds per hour from April, Hunt said.

FINANCIAL INDUSTRY

* Hunt set out plans to “make the UK the world’s most innovative, dynamic and competitive global financial centre”, including allowing insurers to invest more in infrastructure.

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.”

REACTION

* Rating agency Moody’s said the plans went some way to restoring Britain’s economic credibility, but that risks remained due to the tough outlook.

MARKETS

* The pound fell 1.2% against the dollar to $1.1760 and dropped 0.5% against the euro to 87.68 pence. UK 10-year government bond yields, which move inversely to prices, rose 6 basis points to 3.21%, while London blue chip stocks (.FTSE) headed for a 0.1% loss on the day.

* “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.