UK delays budget as Rishi Sunak attempts to resolve ‘economic crisis’
The British government has delayed its budget for more than two weeks, giving new Prime Minister Rishi Sunak time to make tough choices about how to deal with the country’s « deep economic crisis ».
Finance Minister Jeremy Hunt will present the government’s medium-term budget plan on November 17, according to a statement from the Treasury. It had been scheduled for October 31, after the date was brought forward by more than three weeks in a desperate attempt to reassure investors spooked by huge unfunded tax cuts promised by former Prime Minister Liz Truss.
Sunak, Britain’s third prime minister in seven weeks, took office on Tuesday with a promise to right the « mistakes » made by Truss.
He told lawmakers on Wednesday that the government would have to make « difficult decisions to restore economic stability and confidence. »
« But what I can say – as we did during Covid – we will always protect the most vulnerable, we will do it fairly, » Sunak said. “Leadership does not sell fairy tales. He faces challenges and that is the leadership the British people will get from this government,” he added.
Truss’ September 23 « mini » budget sent the pound plummeting and caused a rout in the bond market, sending UK borrowing costs skyrocketing, including mortgage rates.
While Hunt has already scrapped the bulk of those tax cuts, restoring a sense of calm to markets, investors remain eager to hear how the government plans to tackle its growing debt burden amid the recession.
There are no easy solutions. To reduce debt as a share of the economy, the government needs to find between £30 billion ($34.7 billion) and £40 billion ($46.3 billion) over the next five years, according to calculations by the Institute for Fiscal Studies (IFS), an influential think tank.
The only way to plug the hole either by reducing government spending or by increasing revenue by raising taxes. Both are likely to prove wildly unpopular with British voters facing a worsening cost of living crisis as food and fuel bills soar.
One area Sunak might be tempted to exploit is the welfare budget. Questions have been circulating about whether the Conservative government might try to avoid raising state benefits in line with inflation, as is customary, and instead tie the increase to average incomes, which do not rise as fast as prices.
This could save £7bn ($8bn) in 2023-24, according to the IFS, but would be controversial.
A more acceptable option, at least for households, would be to levy more corporate taxes. Hunt has previously said corporate taxes will rise from 19% to 25% next spring and is open to the idea of one-off taxes on banks and oil and gas companies.
The risk, however, is that spending too little or raising taxes too much could exacerbate the UK slowdown. A weak economy will only aggravate debt and spending problems.
According to Hunt, the budget, when tabled, will outline how the government intends to reduce debt over the medium term. At a Cabinet meeting on Wednesday, Hunt said she would be accompanied by a full analysis of the government’s growth and spending plans by Britain’s fiscal watchdog, the Office for Budget Responsibility.
–— Allegra Goodwin and Lauren Kent contributed reporting.