LONDON—Middle-income earners in the United Kingdom will be the hardest hit by the government’s updated budget, a leading political expert told Xinhua.
Commenting on the Autumn Statement delivered by Chancellor of the Exchequer Jeremy Hunt recently, Professor Iain Begg from the London School of Economics and Political Science said the fiscal plan is a mix of measures for everyone but the middle classes will feel that the outcome is very negative for them.
Last week, Hunt announced a package of tax hikes and spending cuts worth 55 billion British pounds (US$66.2 billion). The government extended windfall taxes on energy companies’ profits, froze the income tax, inheritance tax and national insurance thresholds, reduced the threshold of the top income tax rate and increased the minimum wage.
“Those on lowish incomes will be brought into the tax bracket,” Begg said. “Those on the current lower rate of tax may well be brought into a higher rate of tax if they gain pay increases because the tax thresholds are being frozen. And that’s going to mean that those who are relatively prosperous will be paying more in tax simply because the thresholds have not been adjusted.”
By freezing the tax thresholds and tax allowances, as Hunt has done, the government will drag more people into the tax net to generate more tax revenue, Begg explained.
The updates to the country’s fiscal policies came against the backdrop of a worsening cost-of-living crisis. Inflation in the UK hit a 41-year high of 11.1 percent in October, and people’s wage growth has failed to catch up with the soaring inflation.
“People are already digging deeper into their pockets because of inflation. It means that your current income doesn’t go as far as it used to,” Begg said.
“There were a number of measures that should at least prevent the worst off from being more badly hit than might have been feared,” he said.
According to Hunt, the National Living Wage will rise to 10.42 pounds per hour from April 1, 2023, an increase of 92 pence or 9.7 percent.
Also, while the government is currently capping typical energy bills for households this winter at 2,500 pounds, the Energy Price Guarantee will continue to provide support from April 2023, with the cap rising to 3,000 pounds. Households on means-tested benefits, pensioners, and people on disability benefits will receive new payments.
Hunt’s announcement came after a large-scale package of unfunded tax cuts announced by the previous government led by former Prime Minister Liz Truss in September threw financial markets into turmoil. The giveaway measures were expected to ramp up public borrowing, but they dealt a huge blow to the country’s fiscal reputation.