Britain has unveiled an austerity budget with £55 billion of tax hikes and spending cuts, despite confirming its economy is in recession.
Chancellor Jeremy Hunt confirmed the measures were needed to bring financial stability after recent turmoil, and insisted they would alleviate rather than aggravate the downturn.
A day after official data showed UK inflation rocketing to a 41-year high above 11%, Mr Hunt triggered a fresh era of austerity after the calamitous and short-lived tenure of former prime minister Liz Truss.
Britain's Office for Budget Responsibility judged "that the UK, like other countries, is now in recession", Mr Hunt told parliament this morning.
Despite the downturn, Mr Hunt and Prime Minister Rishi Sunak insist tough action is needed after Ms Truss unleashed a package of unfunded tax cuts that caused panic on financial markets.
The pound hit a record-low against the dollar in late September after Ms Truss failed to reveal the impact of her tax cuts on growth and inflation.
Mr Hunt's budget did the opposite, confirming that as well as the UK being in recession, its economy would contract 1.4% next year.
The Bank of England, which is raising interest rates to combat sky-high inflation, has warned the UK economy may experience a record-long recession until mid-2024.
Despite the grim outlook, Mr Hunt confirmed tax rises for workers alongside spending cutbacks.
However, he pledged to increase spending on the National Health Service amid a severe backlog in patient operations.
Mr Hunt also ramped up a windfall tax on oil and gas giants, whose profits have surged on fallout from the Ukraine war, to help fund support for the poorest consumers facing rocketing energy bills.
Energy giants such as BP and Shell will face an exceptional tax on profits of 35%, up from 25%, last an additional three years to 2028.
The government will also impose a new temporary levy on electricity generation companies.
The Ukraine war has helped push worldwide inflation to its highest levels in decades. Prices are also up on supply constraints fuelled by the Covid pandemic.
Britain's economy is additionally being impacted by Brexit, Bank of England governor Andrew Bailey and fellow BoE rate-setter Swati Dhingra told MPs yesterday.
Mr Hunt at the weekend likened himself to the penny-pinching miser Ebenezer Scrooge in Charles Dickens' 'A Christmas Carol', but argued that his plan will "make sure Christmas is never cancelled".
He insisted that, thanks to his measures, the downturn would be "shallower", shrugging off concerns that tax hikes and spending cuts could deepen the downturn.
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"In the face of unprecedented global headwinds, families, pensioners, businesses, teachers, nurses and many others are worried about the future," Mr Hunt told his fellow MPs.
"So today we deliver a plan to tackle the cost-of-living crisis and rebuild our economy."
It comes as UK workers across various sectors have gone on strike this year to demand pay rises to compensate for surging inflation.
State-employed nurses and firefighters could be the latest groups to carry out industrial action, joining further walkouts this winter by rail workers and postal staff.
Mr Hunt has already set about reversing Ms Truss's much-criticised budget by curtailing a freeze in domestic fuel bills, which have surged largely owing to the invasion of Ukraine by major energy producer Russia.
Helping to stabilise markets, he also reversed her plan to cut tax on company profits.
'Pushing more people into poverty'
Mr Hunt has now been accused of pushing more people into poverty or even onto the streets.
John Bird, founder of The Big Issue magazine, said austerity was too expensive for the country, warning that balancing the books in the short-term means passing debts on to future generations.
"The policies announced will only serve to push even more people into poverty and worse, onto the streets. We break the cycle of poverty and injustice now, not perpetuate it," he said.
"The last austerity destroyed generational opportunity. This country needs to act now and invest in putting a safety net around people to stop them falling into poverty and homelessness."
"Nobody should be having to choose between feeding their children, keeping the house warm or paying the rent.
"We need better-paid, more sustainable jobs, affordable and decent housing, and better rights for renters. By committing to programmes and policies that genuinely work for everyone, we can finally cut the throat of poverty and usher in a new era of shared economic prosperity."
Gary Smith, general secretary of union GMB said that the Conservative party has "crashed the economy" and that it is "working people who are paying the bill".
"The Chancellor has decided to double down on the failed politics of austerity, adding to everyone's cost-of-living misery by increasing taxes and cutting money from essential public services," Mr Smith said.