© Reuters. FILE PHOTO: Britain’s Chancellor of the Exchequer Jeremy Hunt talks to a television crew outside the BBC headquarters in London, Britain November 18, 2022. REUTERS/Henry Nicholls
By William Schomberg
LONDON (Reuters) – Britain’s Finance Minister Jeremy Hunt is expected to keep his grip on public finances in next week’s budget, refraining from making big tax cuts or spending increases until further notice. until the next elections are approaching.
Hunt’s Conservative Party lawmakers want him to halt April’s big corporate tax rate hike to revive an economy on the brink of recession.
At the same time, unions and opposition parties are demanding bigger pay rises for nurses, teachers and other public sector workers whose earnings have been hit by double-digit inflation.
A £30billion ($35.59billion) windfall in struggling public finances has added to pressure on Hunt to ease the fiscal stance he took when he was appointed Minister of Foreign Affairs. Finances in October, after former Prime Minister Liz Truss’ “mini-budget”. “
His plans for sweeping, unfunded tax cuts triggered a bond market meltdown, leading to his replacement in Downing Street by Rishi Sunak. He and Hunt told investors that Britain was not tearing apart economic orthodoxy after all.
Their promise to bring down Britain’s £2.5 trillion debt mountain as a share of the economy in five years will limit Hunt in his March 15 budget statement.
According to the Resolution Foundation think tank, around two-thirds of the £30bn of wiggle room in its existing plans comes from one-off factors.
The remaining £10billion, from higher-than-expected tax revenue, would be enough to pay another three months of subsidies to households hit by soaring energy bills and another 12-month freeze on fuel taxes, but nothing else to ease the cost of population compression in the approaching fiscal year 2023/24.
However, Hunt’s restraint is now also seen as a political choice: the Conservative Party will need all the help it can get next year to overcome the opposition Labor Party’s big lead in opinion polls ahead of national elections planned for 2024.
“The reason he’s waiting until next year isn’t really the budget rules, is it? It’s the election calendar,” said Resolution Foundation chief executive Torsten Bell. , during a budget roundtable this week.
BNP Paribas (OTC:) analysts also said saving room for tax cuts ahead of the next election would be a priority for Hunt, meaning he would likely only use half of the windfall from £30 billion in public finances in next week’s plan.
Hunt’s future room for maneuver could be even more limited if Britain’s fiscal watchdog turns more gloomy about the economic outlook in its forecasts that underpin the budget.
So far, the Office for Budget Responsibility (OBR) has been less pessimistic about growth than the Bank of England (BoE).
The OBR said in its latest forecast in November that gross domestic product would fall 1.4% this year but rise 1.3% and 2.6% in 2024 and 2025.
Last month, the BoE said GDP would show no growth in 2024 and 2025 after falling 0.5% in 2023.
Even if the recent drop in petrol prices mitigates the recession expected this year, a shortage of workers, long-standing productivity problems and the aftermath of Brexit risk crippling the economy.
Britain is the only Group of Seven country whose economy has yet to regain its pre-pandemic size.
Hunt said he would introduce economic growth measures in the budget, including ways to deal with the declining size of Britain’s workforce.
He is also expected to announce tax incentives to entice businesses to invest more, which will boost productivity, even as the corporate tax rate drops from 19% to 25% in April.
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