UK budget delayed as Rishi Suna tries to fix ‘economic crisis’

CNN business

The UK government has delayed its budget by more than two weeks, buying new prime minister Rishi Suna some time to make difficult choices about how to deal with the country’s “deep economic crisis”.

Finance Minister Jeremy Hunt will deliver the government’s medium-term fiscal plan on November 17, according to a Treasury statement. It was scheduled for October 31, after the date was brought forward by more than three weeks in a desperate attempt to calm investors spooked by major unfunded tax cuts promised by former prime minister Liz Truss.

Suna, Britain’s third prime minister in seven weeks, took office on Tuesday with a pledge to fix the “mistakes” made by Truss.

He told MPs that the government will have to take “difficult decisions to restore economic stability and confidence”.

“But what I can say – as we did with Covid – we will always protect the most vulnerable, we will do it in a fair way,” said Suna. “Leadership is not about selling stories. He is meeting the challenges and that is the leadership that the British people will get from this government,” he added.

Truss’s “mini” budget on 23 September sent the pound crashing and the bond market crashing, sending UK borrowing costs – including mortgage rates – soaring.

Although Hunt has already scrapped the bulk of those tax cuts, restoring calm to markets, investors remain keen to understand how the government plans to deal with its growing debt burden in the midst of a recession.

There is no easy solution. 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 estimates by the Institute for Fiscal Studies (IFS). , an influential think tank.

The only way to plug the hole is to increase revenue by reducing public spending or raising taxes. Both are likely to be very unpopular with British voters as the cost of living crisis worsens as food and energy bills soar.

One area that Sunak can touch on is the social welfare budget. Questions have been raised about whether the Conservative government will try to avoid increasing state benefits based on inflation, as is customary, and instead link the increase to average earnings, which are not rising as fast as prices.

This could save £7 billion ($8 billion) in 2023-24, according to the IFS, but would be controversial.

A more palatable option, at least for families, would be to tax businesses more. Hunt has already said corporate taxes will rise from 19% to 25% next spring, and is open to surprise taxes on banks and oil and gas companies.

The risk, however, is that underspending or raising taxes too much could exacerbate Britain’s decline. A weak economy will make debt and spending problems worse.

According to Hunt, the budget, when it comes, will determine the government’s intention to reduce the debt in the medium term. At a Cabinet meeting on Wednesday, Hunt said the UK’s Office for Budget Responsibility would carry out a full review of the government’s growth and spending plans.

–— Allegra Goodwin and Lauren Kent contributed reporting.