Title: Jeremy Hunt’s Upcoming Budget: Tax Cuts Amidst Challenging Economic Conditions and Soaring Debt
Jeremy Hunt, the UK finance minister, is set to announce a tax cut for workers on Wednesday, 15th March 2023, during his last budget speech before the general election later this year. According to numerous reports in the UK media, the proposed tax cut is expected to be a reduction in national insurance, which is a levy paid by employed individuals.
The British economy has shown little growth in 2023 and slipped into recession at the end of the year, despite Prime Minister Rishi Sunak’s pledge to generate economic growth. The Bank of England forecasts a mere 0.25% expansion in the economy for the year 2024.
Despite this dismal economic outlook, Hunt is anticipated to deliver an optimistic assessment of Britain’s economic future during his budget speech. According to the Treasury statement, he will declare, “We can now help families with permanent cuts in taxation.” Hunt’s Conservative Party is currently trailing the opposition Labour Party significantly in opinion polls, further incentivizing him to announce tax cuts, regardless of their size.
The UK’s overall tax burden remains at a post-war high, and living standards have declined, making it challenging for the chancellor to make substantial giveaways due to mounting government debt and crumbling public services. Since 2020, UK government debt has surged by more than 40%, reaching a staggering £2.6 trillion ($3.3 trillion), according to the Office for National Statistics, a level not witnessed since the early 1960s and nearly equivalent to the nation’s annual gross domestic product.
The escalating debt burden is increasingly siphoning funds away from essential public services, which have already been strained by inflation and past budget cuts. Several local authorities, including the second-largest city, Birmingham, have recently declared bankruptcy. The Local Government Association warned in December that English councils face a £4 billion ($5.1 billion) funding gap during the current year and the following one.
Other areas of the national budget, such as social care and the police force, are also at risk. Spending on defense, schools, the National Health Service, and overseas aid has been ringfenced for now. However, economists at Capital Economics argue that the government’s spending plans appear “implausible,” as significant cuts to unprotected spending have been penciled in from 2024 onwards.
Capital Economics is not the only organization expressing concerns about the government’s approach to its spending plans. The Office for Budget Responsibility (OBR), the fiscal watchdog, made similar criticisms recently. OBR chair Richard Hughes stated in January that the government had not provided any detailed breakdown of departmental spending plans beyond March 2024, only offering headline figures.
Hughes further remarked, “Some people have referred to that as a work of fiction.” He added, “That is probably generous, given that someone has bothered to write a work of fiction, whereas the government have not even bothered to write down their departmental spending plans underpinning their plans for public services.”
Hunt’s budget announcement is scheduled for 7:30 a.m. ET on Wednesday, 15th March 2023.
