GB: Government unveils austerity plan

Posted November 17, 2022 2:30 pm

(with speech by Jeremy Hunt)

By David Milliken, William Schomberg and Andy Bruce

LONDON, November 17 (Reuters)

Britain’s Finance Minister Jeremy Hunt announced on Thursday measures to clean up the budget, tax increases and increased controls on public spending to restore confidence in financial markets after a painful episode of the Liz Truss government.

In his speech in the House of Commons, Jeremy Hunt explained that the UK economy is already in recession, but the government cannot postpone the sometimes painful measures.

“Confidence cannot be taken for granted and yesterday’s inflation figures show that we must fight relentlessly to bring it down, which includes a strong commitment to consolidating public finances.”

Among the measures he detailed were broadening the income tax base, lowering the top tax rate and reducing tax relief for dividends.

The salary threshold at which companies must pay certain social deductions will also be frozen until 2028, which will affect the number of eligible workers and therefore the payments made by employers.

Jeremy Hunt also announced that the government would increase the tax on windfall profits from the energy sector. Thus, the profits of oil and gas companies will be taxed at 35% instead of 25% from January 1 and until 2028, and now a new tax of 45% will be imposed on electricity producers.

This tax alone should bring £14bn (€16.1bn) to the Treasury next year.

The plan announced on Thursday is part of a context of a marked deterioration in the economic situation: the Office for Budget Responsibility (OBR), the Treasury’s independent body responsible for assessing public finances and the economic situation, is now forecasting a contraction of 1.4%. While the gross domestic product (GDP) in 2023 is expected to grow by 1.8% in March.

OBJECTIVE: To restore market confidence

Since the spring, the UK economy has seen an accumulation of challenges, including the continued acceleration of inflation, now above 11%, a slowdown in the global economy and financial market volatility, which is intensifying under Liz Truss. ‘short time.

Jeremy Hunt explained that the new OBR forecast “clearly reflects the impact of global headwinds on the UK economy”.

The OBR forecasts gross domestic product (GDP) growth of 1.3% in 2024 and 2.6% in 2025, Jeremy Hunt said. In March, it said it expected expansion of 2.1% in 2024 and 1.8% in 2025.

Inflation should average 9.1% for the whole of this year before returning to 7.4% next year.

Jeremy Hunt and Prime Minister Rishi Sunak’s stated priority is to restore investor confidence after the debacle of Liz Truss and her short-term Finance Minister Kwasi Kwarteng at the end of September, triggered by a plan for massive but unfunded tax cuts. the pound will fall and government bond yields will jump like mortgage rates. On October 20, the financial storm that prompted Liz Truss to resign.

On Thursday, the pound extended losses against the dollar and the euro after Jeremy Hunt’s speech, and British government bond yields rose as the London Stock Exchange fell more than 0.5%.

Jeremy Hunt has thus promised to reduce the weight of public debt relative to GDP within five years, while reducing the budget deficit to less than 3% of GDP.

To achieve this, it plans to expand, among other things. At the same time, public spending will have to grow at a slower pace than GDP, the Chancellor of the Exchequer said, ensuring public service budgets grow over the next five years.

The social component of the government plan also includes a 9.7% increase in the minimum wage from next April. On the other hand, the device, which aims to limit the rise in household energy bills, will be reduced by raising the ceiling from £2,500 to £3,000 a year, as announced last month.

The budget cuts are expected to be around half of the £55 billion needed to shore up public finances. (French version edited by Marc Angrand, Kate Entringer and Jean-Michel Bélot)

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