Tax hikes and spending cuts: What's the new U.K. budget plan?

LONDON (Reuters) – British finance minister Jeremy Hunt announced a series of tax hikes and a more austere approach to public spending in a tough budget plan on Thursday.

Here are some of the changes:

TAX ON PEOPLE

The highest earning Britons will now pay the top 45% rate of tax on income above 125,140 pounds, rather than 150,000 pounds previously. The previous administration of Prime Minister Liz Truss had tried to abolish the top rate altogether.

The government will freeze until April 2028 the threshold on the amount people can earn tax free as well as the level at which the higher rate of income tax kicks in.

The Office for Budget Responsibility estimated that 3.2 million people would be pulled into income tax by the now six-year freeze on thresholds, and 2.6 million extra people would become higher rate taxpayers.

Hunt said he would cut the amount shareholders can earn in dividends before they begin paying tax from the current level of 2,000 pounds ($2,366) to 1,000 pounds next year and 500 pounds from 2024.

Because electric cars are increasingly common, Hunt said they would no longer be exempt from vehicle taxes from April 2025.

TAX ON BUSINESS

Britain's tax on energy company profits will increase to 35% from 25% from January next year until March 2028. Hunt also announced a new, temporary 45% tax on electricity generators, designed to target profits made by low-carbon generators. Hunt said these changes would raise 14 billion pounds next year.

Hunt froze the threshold at which employers pay National Insurance contributions – or social security – until April 2028.

Hunt said he would cut the business rates tax on company premises but commence a revaluation of business properties from April to make sure the tax reflects the value of properties.

GOVERNMENT SPENDING

Public spending would grow but more slowly than the economy, Hunt said.

Existing increases planned for departmental budgets would be protected in cash terms until 2024/25, Hunt said – meaning a big real-terms cut with inflation running so high. Resource spending would then grow at 1% a year in real terms for the following three years, he said.

Overall spending on public services will continue to rise in real terms for the next five years.

Education, health and social care will see a boost however, with Hunt announcing an extra 2.3 billion pounds per year investment in schools for the next two years.

He said he would increase the state-run National Health Service budget in each of the next two years by an extra 3.3 billion pounds, and there would also be an increase in funding available to the social care sector of up to 2.8 billion pounds next year and 4.7 billion pounds the year after.

Hunt said he would keep in place the so-called triple lock, which guarantees the state pension will increase by inflation, average earnings or 2.5% – whichever is highest.

(Reporting by Andy Bruce and Kylie MacLellan; Editing by Nick Macfie)

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