New UK budget plan could ease recession | Opinion

Jeremy Hunt has contributed to reducing the British government’s lack of credibility with investors. The country’s new finance minister came to the rescue last month after then-Prime Minister Liz Truss spooked the currency and bond markets with unfunded tax cuts. On Thursday, less than two months after the disaster, the “mini-budget” was submitted. A package of 55.000 million pounds (€63 billion) from spending cuts and tax increases, even as the country heads into recession.

Despite the fact that the media has been reporting Black hole From the country’s public finances, Hunt’s budget plan takes a gradual approach to fiscal adjustment. Most of the money comes from increasing and expanding the tax on excess profitability of power companies, from 25% to 35%, and a new 45% tax on electricity generators.

The UK Treasury projects that these measures – which broaden the definition of a tax on profits falling from the sky – will raise £7,500m (€8,600m) in the financial year ending April 2024 and contribute nearly £6,000m (7bn) four years later. The government will also raise significant additional revenue by freezing corporate and income taxes, rather than increasing it on the basis of inflation.

On the spending side, most savings come from limiting recurrent budget expenditures to an annual increase of 1% after accounting for inflation, while public investment remains stable in nominal terms. But both measures will not take effect until 2025.

Instead, a series of transfers for already low-income families will apply next year. Hunt also extended Truss’s energy subsidy for another year, on revised terms, at half the cost.

Combined, these measures will help ease recessionary forecasts for next year, according to the Office for Budget Responsibility. However, the British economy will contract by 1.4% in 2023. By the time it starts growing again, British households will have suffered two consecutive years of falling real disposable income, the office says.

If these predictions come true, the British government debt will reach 111% of GDP by April 2027. Delaying the damage may also help the forecast of new Prime Minister Rishi Sunak in the upcoming general elections, which are scheduled earlier in January 2025. If Failing that, Hunt will have passed responsibility to the incoming Labor government.

Authors columnists for Reuters. The opinions are yours. Translation Carlos Gomez DownWell, it’s a responsibility five days