The Austerity of the Autumn Statement onthe UK Economy

Harvest Global Markets :

UK’s Chancellor of the Exchequer Jeremy Hunt is expected to establish the fiscalarrangementfor Rishi Sunak’s tenure in the Autumn Statement. TheAutumn Statementis to be delivered on 17th November, two months after Liz Truss’s administration caused severe chaosin the British market,with a tumbling Pound and unexpected intervention by the Bank of England. The Autumn Statement is set to converge nearly£55 billion of public finances through £21 billion of tax rises and £33 billion of public spending cuts a year by 2027-28.

Hunt,has warned there will be limits on helpfor household expenditures especially due to energy costs, and the current energy price guarantee ends in April 2023 which was initially set for two years.Although the cost to the government would automatically decrease due to the recent steep decline in energy costs for supplies over the next six months, lifting the cap will result in a further impact to household earnings. As the latest release affirms inflation of 11.1% for the month of October.

Hunt may also raise taxes on dividends and capital gains.Several taxpayers are likely to be affected more than others by the fiercely contested issue of windfall taxes on specific firms. A portion of the burden will already fall on individuals due to the fixed personal allowance and income tax bands.By displaying a return to the serious financial management of the economy and tax system, the Chancellor hopes to calm financial markets. The government should set the tone by concentrating on long-standing concerns like revamping R&D reliefs and putting into practice the OECD’s two-pillar strategy to solve the tax issues brought on by the global economy’s digitalization.

Reforms in the Corporation Tax are quite improbable as they are anticipated to increase to 25% starting in April 2023. To reflect the actual increases in the company tax rate, the bank fee is to be decreased from 8% to 3%. It’s uncertain if this decrease will take place entirely or in part. In the near term, banks can be perceived as an easy target for generating revenue.

The flip side, though, is that deeper strictness measures now will lower aggregate demand and inflation, therefore reducing the need for further interest rate hikes and offsetting some of the pain.

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