UK unveils emergency budget amid big demands but little money
LONDON (AP) — So many requests. So little money.
Just three weeks after taking office, British Prime Minister Rishi Sunak faces the challenge of balancing the national budget while helping millions hit by a cost of living crisis as Russia’s war in Ukraine drives up energy prices and slows economic growth.
Treasury leader Jeremy Hunt will outline the government’s plan to tackle a sluggish economy in a speech to the House of Commons on Thursday.
The emergency budget declaration aims to restore the government’s financial and political credibility after former prime minister Liz Truss announced 45 billion pounds ($53 billion) in unfunded tax cuts that torpedoed public confidence investors, sent the pound to record highs against the US dollar and triggered emergency central banking interventions. Truss was forced to resign six weeks after taking office.
Hunt is expected to announce £30 billion in spending cuts and £24 billion in tax increases, the BBC and other UK media reported.
The government will struggle to meet all the competing demands, said Torsten Bell, chief executive of the Resolution Foundation, a think tank that seeks to improve living standards for low- and middle-income people.
“The uncomfortable reality is that unless global energy prices reverse, we will remain poorer as a country than we hoped to be,” Bell wrote this week. “The world is as it is, not as we would like it to be, but the question is how much do we struggle with that reality.”
It means dealing with demands from nurses, police, border guards and civil servants who are all demanding pay rises after inflation accelerated to a 41-year high of 11.1 % in October. Welfare recipients and retirees are also seeking higher payments, and low-income families are calling for an expansion of the free school meals program.
But resources are limited, with Sunak facing a budget shortfall of at least 40 billion pounds ($47 billion) which he says will require both tax increases and spending cuts.
He is likely to announce an extension of a windfall tax on energy companies to help consumers cope with higher natural gas and electricity bills. The government may also delay plans to raise upper tax bracket thresholds. This would increase the income of individual taxpayers as their salary brackets increase with inflation.
Hunt will reiterate its commitment to fairness as the government balances its books, “ensuring support for the most vulnerable and ensuring that those with the broadest shoulders bear the heaviest load,” said the Treasury in a press release.
Among those most in need of help is Magdelena Prosenic, a single mother who described her struggles to feed her two young children as she queued at a community pantries in south London on Wednesday.
“I really hope there will be a ceiling for rising costs,” she said. “It’s too much. I mean the money remains the same, but the costs are much higher.
The budget comes against a bleak backdrop, with the war in Ukraine, the aftershocks of the COVID-19 pandemic and the economic strains of Britain’s exit from the European Union all weighing on the UK economy .
Economic output fell 0.2% in the third quarter and the Bank of England predicted a recession that could last up to two years. The government is also paying the price for the unfunded tax cuts announced by Truss, which have damaged Britain’s reputation for fiscal discipline and increased government borrowing costs.
Hunt and Sunak, who replaced Truss as Conservative Party leader and prime minister last month, reversed most of Truss’s policies, while promising that the government will pay its bills and start reducing debts accumulated over the past few years. last 15 years.
Britain’s public debt soared to nearly 83% of economic output in 2017 from less than 36% in 2007 as the government bailed out banks and struggled to prop up the economy. A decade of fiscal tightening had begun to reduce the burden when the COVID-19 pandemic and war in Ukraine pushed debt to 98% of gross domestic product. It is the highest since 1963, when Britain was still recovering from the Second World War.
But some economists are warning against reducing public debt too quickly at a time when rising food, energy and housing prices are set to wipe out the savings of a fifth of British households.
Now that most of Truss’ policies have been reversed, the government should be able to close the remaining budget gap with “relatively small” policy adjustments that won’t jeopardize the investments needed to boost economic growth, according to a report by the independent national institute. for social and economic research.
“The greatest danger now is that we collectively decide to show fiscal credibility by adopting excessively restrictive fiscal policy and limiting support to poor households or limiting critical elements of public investment,” he said. the director of the institute, Jagjit Chadha, in the report.
Prosenic, the single mother, knows the pain firsthand. She lined up at the pantry which offers discounted essentials to dozens of families, hoping to do what she could for her baby and 3-year-old.
For 5 pounds, people can buy 20 fresh fruits, vegetables and essentials like canned beans and pasta. But items like eggs, whose price has skyrocketed, are in high demand, and there are only those who arrive early.
“We are on allowances, but it’s hard to support two children without help,” Prosenic said. “Children need fruit, they need diapers and formula.”
Anna Sjovorr-Packham, who runs the pantry, said the number of families buying food from them was increasing “slowly but steadily”. And the cold winter months are coming, when families have to spend more on heating.
“I think there was once an idea that people accessing food pantries might need the service as a last scenario – there can be a stigma on the type of person,” she said. “But now pantries are definitely used by everyone.”
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