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London
CNN Business
–
The UK government has delayed its budget by more than two weeks, buying new Prime Minister Rishi Sunak some time to make tough choices about how to deal with the country’s “profound economic crisis”.
Finance Minister Jeremy Hunt will now deliver the government’s medium-term fiscal plan on November 17, a statement from the Treasury said. It was set for October 31 after the date was earlier pushed forward by more than three weeks in a desperate attempt to reassure investors reeling from huge unfunded tax cuts promised by former prime minister Liz Truce.
Sunak, Britain’s third prime minister in seven weeks, took office on Tuesday with a pledge to correct the “mistakes” made by Truce.
He told lawmakers on Wednesday that the government “will have to take difficult decisions to restore economic stability and confidence.”
“But what I can say is – as we did during Covid – we will always protect the most vulnerable, we will do this the right way,” Sunak said. “Leadership is not selling fairy tales. It is facing challenges and that is the leadership that the British people will get from this government,” he added.
Truss’ “mini” budget of 23 September sent the pound crashing and bond markets into a slump, with UK borrowing costs – including mortgage rates – rising.
While Hunt has already reduced most of those tax cuts, restoring a sense of calm to markets, investors remain anxious to understand how the government plans to tackle its mounting debt burden in the midst of a recession.
There are no easy solutions. To reduce debt as a share of the economy, the government needs to find between £30 billion ($34.7 billion) and £40 billion ($46.3 billion) over the next five years, according to calculations by the Institute for Fiscal Studies (IFS). , an influential think tank.
The only way to plug the hole By increasing revenue by reducing public expenditure or increasing taxes. Both are likely to prove extremely unpopular with British voters facing a cost-of-living crisis due to rising food and energy bills.
One area Sunak may be tempted to tap into is the social welfare budget. As is customary, conservative governments may try to avoid increasing state benefits in line with inflation and instead link increases to average earnings, raising questions about prices not rising as fast.
It could save £7 billion ($8 billion) in 2023-24, according to the IFS, but that would prove controversial.
A more palatable option, at least for households, would be to tax corporations more. Hunt has already said corporate tax will rise from 19% to 25% next spring, and is open to the idea of windfall taxes on banks and oil and gas companies.
However, the risk is that spending too little or raising taxes too much could exacerbate Britain’s recession. A weak economy will only worsen the debt and spending problems.
According to Hunt, the budget, when it comes, will determine how the government plans to reduce debt in the medium term. At a cabinet meeting on Wednesday, Hunt said he would be accompanied by a full analysis of the government’s plans for growth and spending by the UK’s fiscal watchdog, the Office for Budget Responsibility.
—— Allegra Goodwin and Lauren Kent contributed reporting.
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