The presentation of the Conservative Chancellor of the Exchequer Jeremy Hunt, scheduled before British MPs, will in particular complete the repair of the damage caused by the “mini-budget” of the previous government, led by the ephemeral Prime Minister Liz Truss.
Combining massive aid for energy bills and all-out tax cuts, this project was to be financed mainly by borrowing on the markets in full surge of inflation and interest rates. The planned tax relief was colossal in scale, estimated at between £100 billion and £200 billion.
This budget had panicked the markets and had resulted in a plunge of the pound sterling to its historic low. Government borrowing rates had jumped, impacting credit conditions for households and businesses.
The Bank of England had to intervene urgently and then Conservative Finance Minister Kwasi Kwarteng was sacked after barely five weeks in office, before being replaced by Mr Hunt, responsible for turning the tide.
The latter has since continued to hammer that he will have to make “very hard” decisions. His package of measures will be based in particular on forecasts by the OBR, the public budget forecasting body, which had not been consulted by Kwasi Kwarteng, which had contributed to scaring away investors.
“Stability has now returned to the UK,” but that’s because markets expect a return to fiscal orthodoxy, Conservative Prime Minister Rishi Sunak, successor to Liz Truss, said on Monday.
“We are all going to have to pay more taxes,” repeated the Minister of Finance again this weekend on Sky News. At the same time, the country will have to cut spending, “to show that we are a country that pays” its debts, he insisted.
These accents remind the British of the severe austerity cure imposed in the wake of the financial crisis of 2008, which had resulted in severe cuts in public services whose impact is still felt today, in particular in health.
The government, however, ensures that the most disadvantaged will be less called upon, in the midst of a crisis in the cost of living.
– tax on energy giants –
The expected tax increases and spending cuts should total between 50 and 60 billion pounds, according to the British press.
The energy giants, which have reaped record profits as market prices soar, should be put to work: an exceptional tax, initially set at 25% of profits but including huge exemptions, and scheduled until 2025 , should be increased and extended.
Another anticipated lever of action: the freezing of certain tax thresholds, in particular 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.
According to the Sunday Times, the government also plans to tax capital gains from a lower threshold.
Expected outcome, according to Deutsche Bank: “A deep recession in 2023 with growth likely anemic until at least 2025.”
The Bank of England has notably argued that it 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”.
For its part, the country’s main employers’ organisation, the CBI, has called on the government to take “brave political decisions”, in addition to difficult tax decisions, to ease immigration rules and alleviate the lack of labor which is hampering businesses.
In particular, Brexit has greatly complicated and discouraged the coming to the United Kingdom of European workers in a context of labor shortages, aggravated by the exit from the labor market of hundreds of thousands of people, in particular due to illness. long.
