Wednesday, December 1

UK government unveils new budget driven by faster than expected recovery

Britain’s Finance Minister on Wednesday released a budget for a “post-COVID economy,” fueled by a stronger-than-expected growth forecast for 2021, with a particular emphasis on public services and the promise to return. to get the budget back on track.

Rishi Sunak’s latest budget was based on forecasts by the state Office of Budget Responsibility (OBR) that economic activity will return to pre-pandemic levels in early 2022 rather than mid-2022, thanks to the reopening of the economy and the success of COVID-19 vaccines.

The Chancellor of the Exchequer said that “this budget is focused on investment and a more innovative and qualified economy”, and that total government spending would increase by 3.8% annually for 2024-2025.

However, the country is expected to experience a slowdown in GDP growth to 6% in 2022. And inflation could peak “of almost 5% next year, the highest rate in the country in three decades,” according to the OBR.

The recovery is showing signs of losing steam, hampered by labor shortages, stuck supply chains and rising energy prices, and high COVID-19 infections.

Tax increases

“With fuel prices at their highest level in eight years, I am not prepared to put more pressure on families and small businesses,” Sunak said, before announcing that a planned fuel tax increase was being canceled.

The government had already put forward a £ 500 million (€ 592 million) fund to help disadvantaged households this winter.

But this budget contains “little new support to help people with the lowest incomes cope with rising energy bills,” said National Energy Action.

To finance these measures, the government had already agreed to an increase in social security contributions, failing to fulfill a campaign promise, as well as an increase in the business tax from 19% to 25%.

However, the Chancellor confirmed the reduction of a surcharge to banks to cushion the rise in corporate tax in the sector.

A major alcohol tax overhaul was also announced, which will increase for hard liquors but will decrease markedly for sparkling wine.

With the opening of the COP26 climate conference in Glasgow just days away, environmental issues received little attention, and Sunak took advantage of the £ 26 billion (€ 30.8 billion) of equity investment revealed last week as part of your carbon neutral strategy.

And while the finance minister announced an increase in taxes on long-haul flights, these are being reduced on short-haul flights, something that the railway workers union Aslef, in particular, denounces for sending “the wrong signals” before leaving. COP26.

‘Parallel universe’

Labor Party chief finance official Rachel Reeves taunted the Chancellor, responding after his announcement that “runaway bankers drinking champagne will applaud this budget,” but “struggling families will think Rishi Sunak is living in a parallel universe”.

“The climate emergency should have been the centerpiece of the budget guidelines … but Mr. Sunak spent more time discussing cider taxes,” Greenpeace said.

The NGO estimates that the Chancellor’s announcements cover only 5% of the spending necessary to meet the country’s climate goals.

The Conservative government is also eager to get the UK’s public finances back on track, with the country’s deficit last year at a post-WWII high of nearly 15% of gross domestic product.

The chancellor unveiled new fiscal rules “to keep this government on the path of disciplined responsibility,” pointing in particular to a budget surplus and a lower debt ratio in three years.

Sunak also announced a goal to “reduce taxes before the end of this Parliament.” But the chancellor’s scope to be generous ahead of the 2024 election “will likely be limited by rising interest payments on the debt,” analysts at Pantheon Macroeconomics warned.

The Treasury had made a number of previous announcements in previous days, including an increase in the minimum wage to £ 9.50 (€ 11.25) an hour and an end to the civil service pay freeze, as well as £ 6 billion ( € 7.1 billion). ) to help the National Health Service (NHS) under pressure cope with the delays in care caused by the pandemic.

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