UK unveils tax-raising budget as growth downgraded • FRANCE 24 English

Key Concepts

• Budget: A government's plan for spending and taxation over a specific period.
• National Insurance: A contribution paid by employees, employers, and the self-employed towards certain state benefits.
• Income Tax Thresholds: The level of income below which no income tax is paid.
• OBR (Office for Budget Responsibility): An independent UK body that provides economic forecasts and assesses the public finances.
• Universal Credit/Child Tax Credit: Benefits paid to low-income households to help with living costs.
• Fuel Duty: A tax on petrol and diesel fuel.
• Mileage-Based Tax: A tax levied based on the distance a vehicle is driven.
• Economic Growth: An increase in the production of goods and services in an economy.
• Inflation: A general increase in prices and fall in the purchasing value of money.
• Public Debt: The total amount of money owed by a government.
• Regional Mayors: Elected officials responsible for local government in specific regions of England.
• Council Tax: A local tax paid by households to fund local services.

Budgetary Measures and Economic Outlook

This summary details the key announcements from the UK Chancellor's recent budget, delivered amidst significant speculation and an early, accidental leak of the OBR's forecast. The budget aims to address the government's financial needs while navigating political pressures, particularly the Labour Party's pre-election commitment against key tax rises.

Key Fiscal Policies

• National Insurance and Income Tax Thresholds: These will be frozen for an additional three years beyond 2028. This measure is projected to bring approximately 800,000 new individuals into the tax system over time as their incomes rise into higher tax bands.
• Property, Savings, and Dividend Income Tax: Basic and higher income tax rates on these income types will see an increase of 2 percentage points.
• Council Tax for High-Value Properties: Properties in England valued at over £2 million will be subject to an additional council tax surcharge, ranging from £2,500 to £7,500.
• Child Tax Credit Cap: The cap that limits households receiving Universal Credit or Child Tax Credit from receiving payments for a third or subsequent child will be removed from April next year. This is a significant measure intended to reduce child poverty and was met with strong approval from Labour MPs.
• Fuel Duty: The temporary 5p cut on fuel duty for petrol and diesel has been extended until September 2026. Following this extension, fuel duty will increase gradually over a six-month period.
• Electric and Hybrid Vehicle Tax: A new mileage-based tax for electric vehicles and plug-in hybrid cars is set to be introduced from 2028, a "pay per mile" scheme that has been widely anticipated.
• Gambling Firm Tax: The tax on profits made by gambling firms from online bets will rise significantly from 21% to 40% in April.

Economic Forecasts by the OBR

The Office for Budget Responsibility (OBR) has revised its economic predictions:

• UK Economic Growth: The OBR now forecasts 1.5% growth for the UK economy this year, an upward revision from the previous estimate of 1%.
• Inflation: Inflation is predicted to average 3.5% this year, with a subsequent fall to 2.5% next year. The OBR expects inflation to return to the government's target of 2% by 2027.

Regional Taxation Powers

Regional mayors in England are to be granted powers to levy taxes on overnight stays in hotels and holiday lets. This mirrors existing arrangements in Scotland and Wales.

Political Context and Party Reactions

The budget is being delivered in a politically charged environment, with speculation surrounding the Prime Minister's leadership and the Labour Party's standing in the polls.

Prime Minister's Position

Despite a significant electoral victory, many Labour MPs hold seats with narrow majorities, leading to concerns about their re-election prospects. This has fueled internal party discussions and media speculation about the Prime Minister's performance and potential leadership challenges. The current unpopularity of the Labour Party and the Prime Minister himself is a significant worry for MPs with slim margins, especially given the rise of parties like the Greens, Liberal Democrats, and Reform UK in opinion polls.

Party Responses

• Labour: The initial reaction from Labour MPs has been positive. The markets have also responded favorably so far.
• Conservatives: The opposition, led by the Conservatives, has criticized the budget, with one leader calling it a "total humiliation." They argue that the tax increases are primarily to fund welfare payments, a claim disputed by the Chancellor and Prime Minister.

Conclusion

The Chancellor's budget introduces a series of fiscal measures, including tax freezes, increases on certain income types, and new levies, alongside extensions of existing support like the fuel duty cut. These policies are framed within revised economic forecasts from the OBR, which predict moderate growth and a gradual return of inflation to target. The budget also grants new taxation powers to regional mayors. Politically, the budget is delivered at a time of internal party concern for Labour, with the opposition strongly criticizing the tax hikes. The long-term impact on public finances and political stability remains to be seen.