The purpose of the tax increases is twofold, according to Hunt. It is partly about reducing the state’s budget deficit, which is otherwise estimated to be 55 billion pounds (roughly SEK 647 billion), and partly about mitigating the effects of a potentially long-term recession.
The latter goal may seem strange given that tax increases reduce demand and thus dampen the economy, but Jeremy Hunt has his eyes on interest rates and international investors’ confidence in the British government’s ability to repay its loans.
Scared the market
Representative Kwasi Kwarteng spooked financial markets and sent interest rates soaring when he unexpectedly proposed big tax cuts in September – marking the beginning and end of Prime Minister Liz Truss’ very short time in power.
The aim then was to speed up the economy, but the rise in interest rates had the opposite effect and Kwarteng soon had to throw in the towel.
Now Jeremy Hunt instead announces that income tax will be increased from 40 to 45 percent for people who earn 125,000 to 150,000 pounds per year. The right to deduct capital gains tax is to be halved, and several other deductions are to be frozen for two years instead of being added up with inflation. The breakpoints in the tax scales for income tax and inheritance tax must also be frozen.
– What I can promise people is that I will be honest about the extent of the problem and fair in the way I deal with these problems. This means that people with the broadest shoulders will have to bear the heaviest burden, he says.
Reluctant tax raiser
Hunt admits in the interview with the Sunday Times that it welcomes putting forward the proposals.
– You get a conservative finance minister who raises taxes, which, you know, goes against the very reason why he got into politics, he says.
According to the Welsh newspaper Nation Cymry the finance minister compares himself in the interview to the miserly and Christmas-hating businessman Ebenezer Scrooge in Charles Dickens’ novel “A Christmas Story” – but with the good intention of saving the state’s finances and fighting inflation.
– I am Scrooge who will do things that ensure that Christmas will never be cancelled, he says.