London bets on savings
The British government is preparing to unveil a budget on Thursday that combines across-the-board tax increases and government spending cuts to give markets seriousness, signaling the return of austerity across the Channel.
In the midst of a cost-of-living crisis and with the country looking headed for recession, Chancellor of the Exchequer Jeremy Hunt’s presentation to parliament will notably need to complete the repair of the damage caused by the government’s “mini-budget”. by the short-lived Prime Minister Liz Truss.
Combining massive support for energy bills and across-the-board tax cuts, this colossal project, estimated at between £100 and £200 billion, was to be financed mainly by borrowing from markets in the full swing of inflation and interest rates.
It panicked the markets and resulted in the pound falling to a record low, while government borrowing rates rose, with household and business credit conditions in their wake. The Bank of England had to intervene immediately.
“Fighting inflation is my top priority and that will guide the tough tax and spending decisions we will announce on Thursday,” Hunt said on Tuesday, reacting to a small rise in unemployment between July and September.
These accents remind Britons of the severe austerity measures imposed in the wake of the 2008 financial crisis, which resulted in severe cuts to public services, the effects of which are still being felt today, particularly in health.
However, Prime Minister Rishi Sunak’s government is ensuring that the most disadvantaged are less affected, while many Britons sometimes have to choose between heating and food.
“It will be a very difficult (budget) presentation, because we will 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.
According to the British press, a revaluation of pensions and allowances in line with inflation would also be on the table.
The bosses of Britain’s biggest supermarkets also published an open letter on Tuesday calling on the government to extend a free school meals program to all children from the poorest families.
Meanwhile, according to the British press, the government is seeking between 50 and 60 billion pounds in tax increases and spending cuts.
The energy giants, who have reaped record profits with skyrocketing market prices, should be put into action: An extraordinary tax, initially set at 25% of profits but including huge exemptions and planned until 2025, could be raised and extended .
The chancellor is also preparing to introduce a new 40% tax targeting all electricity producers, which have also benefited from soaring energy and electricity prices, the Financial Times said on Tuesday.
Another expected force of action: the freezing of certain tax thresholds, especially on income.
With inflation at 10%, this means that households whose incomes have been inflated by wage rises, even below inflation, will automatically be thrown into the upper tax bracket: a de facto tax rise.
Expected outcome, according to Deutsche Bank: “A deep recession in 2023 with growth likely anemic until at least 2025.”
The Bank of England is predicting an economic downturn that could be the longest the UK has ever seen.
Russ Mould, an analyst at AJ Bell, notes that although Mr. Boasting “a good start” with interest rate easing and the pound on the way, Hunt said, “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 “bold policy decisions” to ease immigration rules in the wake of Brexit and ease labor shortages hampering businesses.
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