British Finance Minister Jeremy Hunt on Thursday unveiled a tough budget to fix Britain’s finances, with 55 billion pounds in savings and tax hikes, despite the country having already entered recession.
“It’s a balanced stability plan”, “I tried to be fair by asking those who have more to contribute more”, argued Mr. Hunt, in a sober tone, before Parliament.
He unveiled “three priorities: stability, growth and public services”. Stability, after the financial turmoil of the previous government, tops the list, and with it the fight against inflation, which exceeds 11% in the country and “which affects the poorest the most”.
The new finance minister had the daunting task of reassuring markets chafed by previous prime minister Liz Truss’ unfunded shock budget announcements, which sent the pound plunging to an all-time low and borrowing costs soaring for the country as for the British.
The Bank of England had to intervene to protect the country’s financial stability under threat, and ex-Chancellor Kwasi Kwarteng was sacked after barely five weeks in office, replaced by Jeremy Hunt as budgetary firefighter.
Listing a package of fiscal “consolidation” measures totaling £55 billion (about C$87 billion), he mentioned lowering the top income tax threshold, and raising the tax on windfall income from oil and energy giants.
A little less than half of this sum will come from tax increases, the rest from a reduction in spending, except in Health and Education: “fiscal policy will be tightened significantly next year, amplifying a recession already in progress”, say the economists of Pantheon Macro.
The potion is bitter. The country has already entered recession and gross domestic product is expected to contract another 1.4% next year, forecasts the OBR, the public budget forecasting body.
The pound fell sharply against the dollar after Mr Hunt’s intervention.
dark hours
The context reminds the British of the dark hours of the financial crisis of 2008 and 2009, which was followed by an austerity cure with lasting consequences on public services, and particularly the NHS, the free public health service chronically under- finance.
Mr Hunt insisted that the fight against inflation takes precedence over growth, which he said is eating up the incomes of Britons even more than tax hikes.
He attributed the country’s bleak outlook to global factors: the COVID pandemic and the energy crisis generated by Russia and its invasion of Ukraine.
In addition to COVID and the war in Ukraine, the UK is suffering the impact of Brexit which is crippling trade with its large European neighbor and hampering the hiring of workers from the continent, contributing to inflation and the loss of productivity.
The minister was careful to rely on figures from the OBR, the absence of which during the disastrous “mini-budget” of the previous government had contributed to causing a panic in the markets. The institute also anticipates an increase in the unemployment rate, currently at 3.6%, to 4.9% in 2024.
In addition to the increase in the exceptional tax on the profits of energy giants, Mr. Hunt also announced “a new temporary tax of 45% on electricity producers”.
A reduction in the tax thresholds for taxes on dividends and on capital gains will also increase tax revenue, and the reduction in tax granted on real estate transactions will be limited in time.
Health and Education are doing well and seeing their budgets rise, but other departments will see their spending growth slow over the next five years to generate £30 billion in savings.
Rare good news: pensions will be revalued at the rate of inflation, as will certain allowances, and the minimum wage will increase.
Opposition Labor leader Rachel Reeves lamented a “mess” stemming from “a 12-week chaos” during Liz Truss’ short-lived tenure, but also from “twelve years of Conservative economic failure”.