By By Max Colchester and Paul Hannon
LONDON – The U.K. government unveiled the largest tax increases and spending cuts in a decade Thursday, becoming the first major western economy to start sharply limiting its spending growth after years of ramped-up fiscal stimulus during the pandemic and recent energy subsidies.
The measures mark a second major shift in U.K. economic policy in just a matter of months, after previous British Prime Minister Liz Truss spooked financial markets by pledging to jump-start growth with tax cuts funded by more borrowing. Her successor Rishi Sunak is now taking economic policy in the other direction, trying to convince investors the U.K. is serious about eventually taming rising government debt. His challenge will be to regain market confidence without causing major damage to an economy widely expected to enter a recession.
Chancellor Jeremy Hunt announced 55 billion pounds ($65.53 billion) of spending cuts and tax increases over the next five years, an attempt to begin lowering the size of government debt relative to the economy from the fiscal year ending March 2028.
Among the measures, Mr. Hunt said he would raise taxes by freezing the thresholds at which people pay higher rates, pulling thousands of people into the top band of tax as their pay is boosted by wage rises and inflation. The government will also reduce an energy subsidy to households next spring. It is also increasing a windfall tax on energy company profits.
“Because of our plans the recession is shallower and inflation is reduced,” Mr. Hunt told the U.K. parliament in presenting the plan. “But it means taking difficult decisions,” he added.
-David Luhnow contributed to this article.
Write to Max Colchester at max.colchester@wsj.com and Paul Hannon at paul.hannon@wsj.com
