The British government is preparing to unveil a budget on Thursday combining generalized tax increases and cuts in state spending to give seriousness to the markets, signaling the return of austerity across the Channel.
In the midst of a cost-of-living crisis and as the country seems to be heading towards recession, Chancellor of the Exchequer Jeremy Hunt’s presentation to Parliament will notably have to complete the repair of the damage caused by the government’s “mini-budget”. short-lived Prime Minister Liz Truss.
Combining inflation?utm_source=recirculation&utm_medium=hyperlien&utm_campaign=corps_texte” target=”_blank”>massive aid for energy bills and all-out tax cuts, this colossal project, estimated between 100 to 200 billion pounds, had to be financed essentially by borrowing on the markets in full rise of inflation and interest rates.
It had panicked the markets and resulted in the pound plunging to an all-time low, while government borrowing rates jumped, with household and corporate credit conditions in their wake. The Bank of England had to intervene urgently.
“Tackling inflation is my top priority and that is guiding the tough tax and spending decisions we will announce on Thursday,” Hunt said Tuesday, responding to a slight rise in unemployment between July and September.
” Very difficult “
These accents remind the British of the severe austerity measures imposed in the wake of the financial crisis of 2008, which resulted in severe cuts in public services whose impact is still being felt today, in particular in health.
The government of Prime Minister Rishi Sunak, however, ensures that the most disadvantaged will be less involved, while many Britons must sometimes choose between heating and food.
“It’s going to be a very difficult (budget) presentation, because we’re going to ask everyone to contribute more. But we will ask people who have more to contribute more,” Hunt told British MPs on Tuesday.
In particular, he assured that the government would continue to help households with their energy bills, even after the winter.
A revaluation of pensions and allowances in line with inflation would also be on the table, according to the British press.
The bosses of Britain’s biggest supermarkets also published an open letter on Tuesday urging the government to extend a free school meals program to all children from the poorest families.
In the meantime, the government is seeking between 50 and 60 billion pounds in tax increases and spending cuts, according to the British press.
The energy giants, which have reaped record profits with soaring market prices, should be put to work: an exceptional tax, initially set at 25% of profits, but including huge exemptions, and planned until 2025, could be increased and extended.
The Chancellor is also reportedly preparing to introduce a new 40% tax targeting all electricity producers who have also benefited from soaring energy and electricity prices, assures the FinancialTimes tuesday.
“Deep recession”
Another potential lever for action: the freezing of certain tax thresholds, particularly on income.
With inflation at 10%, this means that households whose incomes have been inflated by wage increases, even below inflation, will find themselves automatically thrown into the upper tax bracket: a tax increase de facto.
Expected outcome, according to Deutsche Bank: “A deep recession in 2023 with growth likely anemic until at least 2025”.
The Bank of England predicts an economic contraction that could be the longest the UK has ever seen.
Russ Mould, analyst at AJ Bell, remarks that while Mr Hunt can boast of “a good start” with borrowing rates easing and the pound recovering, “voters are still waiting to see the basics of a solid long-term plan.
The country’s main employers’ organisation, the CBI, is calling on the government to take “brave policy decisions” to ease immigration rules in the wake of Brexit and ease the labor shortage that is hampering businesses.