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In a bid to fix Britain’s recession-bound economy, Prime Minister Rishi Sunak plans to create a buffer in the public finances to plug the budget shortfall. And in doing so, the country is likely to see significant tax rises and spending cuts to the tune of £50 billion ($58 billion).
Sources close to the development informed, as reported by Bloomberg, Sunak and Chancellor of the Exchequer Jeremy Hunt want the extra headroom over and above the UK’s £35 billion fiscal hole so that the package has credibility with the markets.
And, this would entail spending cuts and tax rises closer to £50 billion, British media on Friday reported but there is no official confirmation yet and the plans are unpublished.
Sunak’s biggest challenge at hand is to restore calm to the financial markets after his predecessor, Liz Truss, sparked turmoil with a massive package of unfunded tax cuts which led to the pound tanking to an all-time low against the dollar.
How Sunak and Hunt are planning their next steps?
In a significant step, Sunak and Hunt on Wednesday announced to delay their planned economic statement to 17 November from 31 October. This would give them more time to make the “right decisions” to manage the British economy.
On Thursday, they held a few rounds of meetings to run through their options. One official said, they were shown recent data that demonstrated the markets had stabilized in recent days but that Britain still faces serious challenges, with growth still depressed by high gas prices and stubborn supply chain issues as a result of the Covid-19 pandemic and Russia’s invasion of Ukraine.
Moreover, they were told that growth is likely to be considerably lower than the most recent official forecasts from the Office for Budget Responsibility, the person said. That will have the knock-on effect of lowering projections for tax revenue, increasing the size of the budget hole to fill, they said.
Sunak and Hunt are trying to chart a path to sustainable public finances that’s likely to rein in some of the excesses of the previous two premiers. As well as reversing much of Truss’s tax cuts, some of her predecessor, Boris Johnson’s infrastructure spending pledges are also likely to be under the microscope. People familiar with the matter told Bloomberg earlier this week that the Treasury has drawn up a list of 104 options to cut spending.
(With inputs from agencies)
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