By William Schomberg
LONDON, November 17 (Reuters) – Finance Minister Jeremy Hunt will bury Britain’s failed ‘Trussonomics’ experiment on Thursday by cutting spending and raising taxes, moves he and Prime Minister Rishi Sunak say are needed to restore investor confidence .
Britain is probably already in recession with 11% inflation creating a cost of living crisis. It is the only Group of Seven country yet to regain its pre-pandemic size after suffering a decade of near-stagnant income growth.
But Hunt warned of more pain in his budget statement which will represent a sharp policy reversal from the unfunded tax cuts promised by former Prime Minister Liz Truss.
His administration’s short-lived ‘mini-budget’ on September 23 sent the pound to a historic low against the US dollar, threatened chaos in the housing market and forced Truss to resign after just 50 days in Downing Street. .
Investors took comfort when Hunt was appointed in mid-October to bring the economy back to a After orthodox way.
He and Sunak say they now have to go further.
“Stability has returned to the UK, but that’s because the government is expected to make these difficult but necessary decisions,” Sunak said this week.
Critics say a return to austerity is unnecessary, will hurt millions of households and deepen the expected recession.
NOTNews reports said the plan – which was due to be announced around 11:30 a.m. (1130 GMT) – was to include inflation-linked increases in social protection and pensions after concerns over a smaller increase.
There would also likely be help for poorer households to pay their energy bills when an existing cap expires and is replaced by a less generous one in April, according to reports.
But Hunt says he can only slow rising borrowing costs if he can show investors that Britain’s 2.45 trillion pound ($2.91 trillion) debt mountain will start to come down in as a share of economic output. Beating inflation is the key to this.
“The Bank of England has my full support in its mission to beat inflation…but we need fiscal and monetary policy to work together,” Hunt said in excerpts from his speech.
TAX INCREASES AND SPENDING CUTS
The UK government is targeting over £50 billion in annual savings within five years, which equates to around 2% of annual economic output. The speed with which spending cuts and tax hikes occur will determine the near-term economic outlook.
The Times said most of the spending cuts would be due after the next election, due in 2024, and may not be needed if the economy improves.
He is due extend the threshold freeze for beginng pay income tax, dragging more people into the net. The newspapers said he was going reduce payment threshold the highest income rate tax by 16% to 125,000 pounds per year.
Reports said Hunt also plans to generate more revenue from dividend and capital gains taxes, while sources said he is considering a big increase in a windfall tax on oil companies and gas and to extend it to electricity production companies.
Further spending cuts could add to public frustration with overstretched public services, from a health system mired in backlogs to dilapidated public housing.
Adjusted for inflation, budgets have been cut below 2010 levels for many departments, with transport spending down around 40% and justice down 20%. lowerestimates from the Institute for Fiscal Studies think tank.
Opinion polls show that the opposition Labor Party has a big lead in the opinion polls.
The budget statement will be accompanied by forecasts from the Office for Budget Responsibility which are likely to echo the message from the BoE that Britain is headed for a long recession.
Hunt said he would tackle one of the drags on the UK economy, namely the shortage of workers in the job market.
The Financial Times said it would announce a reform to allow insurance companies to invest billions of pounds in green energy and other infrastructure projects.
(Writing by William Schomberg; editing by Andrew Cawthorne and Gerry Doyle)
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