UK Budget Jeremy Hunt wants to cut taxes for workers

UK Budget: Jeremy Hunt wants to cut taxes for workers as election looms

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Commuters on London Bridge in January 2024.

London CNN –

British Finance Minister Jeremy Hunt is poised to announce a tax cut for workers on Wednesday when he presents what is expected to be the government's final budget before a general election later this year.

A cut in Social Security – a tax paid by people who work According to several British media reports, costs are expected to be around 10 billion pounds ($12.7 billion). But rising national debt, the decline of public services and a weakening economy leave the Chancellor very little scope for further substantial gifts.

The British economy barely grew in 2023 and, in stark contrast, slipped into recession at the end of the year Prime Minister Rishi Sunak's promise to generate economic growth. In 2024, the Bank of England expects output to grow by just 0.25%, while the International Monetary Fund forecasts growth of 0.6%.

Despite this gloomy backdrop, Hunt is expected to offer an optimistic assessment of the UK's economic prospects.

“We can help families now with permanent tax cuts,” it says to say, according to a statement from the Treasury Department. “Conservatives know that lower taxes mean higher growth. And higher growth means more opportunities and more prosperity.”

Hunt's Conservative Party trails the opposition Labor Party by a wide margin in opinion polls, putting him under enormous pressure to announce tax cuts, however small, in a last-ditch attempt to win over voters.

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But modest cuts in income or payroll taxes are unlikely to change the fact that Britain's overall tax burden remains at a post-war high and living standards have fallen. Economic output per person is still lower than at the end of 2019 and has not yet fully recovered hit by a sharp decline during the pandemic, according to the Office for National Statistics.

Meanwhile, the UK's public debt has risen by more than 40% since 2020 as the state has spent heavily to protect households and businesses from the impact of Covid-19 lockdowns and rising energy costs following Russia's full-scale invasion of Ukraine protect.

According to the ONS, public sector debt exceeded 2.6 trillion pounds ($3.3 trillion) at the end of January, a figure not seen since the early 1960s and almost the same size as the country's annual gross domestic product. Increased interest rates add to the pain.

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The cost of servicing this growing mountain of debt is draining ever-increasing amounts of money from vital public services already under pressure from inflation and previous budget cuts.

Several local authorities have recently declared bankruptcy – including Britain's second largest city, Birmingham, which on Tuesday approved plans to cut local services and dim street lights to balance its books. The Local Government Association warned in December that local authorities in England face a funding gap of 4 billion pounds ($5.1 billion) this year and next.

Other so-called “unprotected” areas of the national territory Budgets such as social care and policing are also at risk. Spending on defense, schools, the National Health Service and foreign aid is limited for now.

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Britain's Finance Minister Jeremy Hunt poses with the red budget box outside his office in Downing Street in London on March 6, 2024.

The government's current plans for public spending appear “implausible,” economists at Capital Economics wrote in a note last month, pointing to significant cuts in unprotected spending planned from next year.

“That seems unlikely when public services are broken,” they added. “Whoever wins the election will likely have to admit that both taxes and spending need to be increased.”

Capital Economics is not alone in pointing out that the government has jumped the gun in discussing its spending plans. The country's own financial regulator, the Office for Budget Responsibility, recently took a similar stance.

OBR chairman Richard Hughes said in January that the government had not provided a detailed breakdown of departmental spending plans beyond March next year, but had simply given headline figures.

“Some people have called this fiction,” Hughes said.

“That's probably generous, considering that someone has bothered to write a work of fiction while the government hasn't even bothered to write down its departmental spending plans, which underpin its public service plans.” , he added.

And cutting future spending on public services to finance tax cuts now could backfire. In a survey of almost 2,000 British adults conducted last month by Deltapoll and the Tony Blair Institute, 52% said the government should invest any extra money to improve the quality and efficiency of public services. Only 11% thought the money should be used for tax cuts.

Hunt will make his budget announcement in Parliament starting at 7:30 a.m. ET.