the government is preparing a new budget that signals the return of austerity

Almost a month after the resignation of Liz Truss in the wake of the announcement of an expensive budget, which had strongly devalued the British pound, the British government will present a new budget proposal on Thursday that looks like a screw for the public finances. .

The British government is preparing to unveil a budget on Thursday that combines across-the-board tax increases and government spending cuts to provide serious assurances to markets, signaling the return of austerity across the Channel. The presentation by the Conservative Chancellor of the Exchequer Jeremy Hunt, which is planned for British MPs, will notably complete the repair of the damage caused by the previous government’s “mini-budget”, led by the volatile Prime Minister Liz Truss.

Combining massive subsidies for energy bills and blanket tax cuts, this project had to be financed mainly by borrowing from markets in full swing of inflation and interest rates. The planned tax cuts were colossal in scale, estimated at between £100 billion and £200 billion.

More taxes to reduce public debt

This budget had panicked the markets and had resulted in a plunge in the British pound to its all-time low. Government borrowing rates had risen, which affected credit conditions for households and businesses. The Bank of England had to intervene quickly, and Conservative Chancellor of the Exchequer Kwasi Kwarteng was sacked after barely five weeks in office, before being replaced by Jeremy Hunt, responsible for turning things around.

The latter has since continued to insist that he will have to make “very difficult” decisions. In particular, his package of measures will be based on forecasts from the OBR, the government budget forecasting body, which had not been consulted by Kwasi Kwarteng, which had helped scare away investors. “Stability has now returned to Britain,” but that is because markets expect a return to fiscal orthodoxy, Conservative Prime Minister Rishi Sunak, successor to Liz Truss, said on Monday.

“We’re all going to have to pay more tax,” the Chancellor of the Exchequer repeated again at the weekend on Sky News. At the same time, the country will have to cut spending “to show that we are a country that pays” its debt, he insisted.

At least £50 billion in revenue and savings

These accents remind Britons of the severe austerity measures imposed in the wake of the 2008 financial crisis, which resulted in severe cuts to public services, the effects of which are still being felt today, particularly in health. However, the government ensures that the most disadvantaged are called up less, in the midst of a crisis in the cost of living.

According to the British press, the expected tax increases and spending cuts should be between 50 and 60 billion pounds. The energy giants, which have reaped record profits as market prices rise, should be put into action: An extraordinary tax, originally set at 25% of profits but including huge exemptions and planned until 2025, should be increased and extended.

Another expected force of action: the freezing of certain tax thresholds, especially on income. At 10% inflation, this means that households whose incomes have been inflated by wage rises, even below inflation, will automatically be thrown into the upper tax bracket: a de facto tax rise. According to the Sunday Times, the government also plans to tax capital gains from a lower threshold.

Brexit perpetuates labor shortages

Expected outcome according to Deutsche Bank: “A deep recession in 2023 with growth likely anemic until at least 2025.” In particular, the Bank of England has claimed that it is predicting an economic downturn that could be the longest the UK has ever seen. Russ Mould, analyst at AJ Bell, notes that while Jeremy Hunt can boast “a good start” with interest rates easing and the pound recovering, “voters are still waiting to see the fundamentals of “a solid long-term plan “.

For its part, the country’s main employers’ organization, the CBI, has called on the government to take “bold policy decisions” beyond difficult tax decisions to ease immigration rules and address the labor shortages that are holding back businesses. In particular, Brexit has greatly complicated and discouraged the arrival of European workers to the United Kingdom in a context of labor shortages, exacerbated by the exit of hundreds of thousands of people from the labor market, particularly due to illness.

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