Britain’s Hunt to keep tight budget with eye on 2024 election

William Schomberg

LONDON (Reuters) – British finance minister Jeremy Hunt looks set to keep his grip on public finances in next week’s budget, holding off on any big tax cuts or spending increases until the next election comes closer into view.

Hunt and his Conservative Party governing party want Hunt to stop April’s dramatic jump in corporate taxes to help kick-start an economy that is on the brink of collapse.

Opposition parties and trade unions are calling for higher salaries for nurses, teachers, and other employees in the public sector whose incomes were hit hard by inflation.

Hunt is under increasing pressure to loosen the fiscal policy he adopted in October when he was appointed finance minister. This follows the departure of Liz Truss, former prime minister. “mini-budget.”

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The bond market crashed as a result of her plans to implement unfunded, sweeping tax cuts. She was replaced in Downing Street, by Rishi, Sunak. Hunt assured investors that Britain is not upsetting the economic order.

Hunt will be restricted by their pledge to see Britain’s 2.25 trillion-pound debt pile fall as a proportion of the economy over five years. This is according to his March budget statement.

According to Resolution Foundation, about two-thirds of his 30 billion pounds worth of flexibility in his plans come from one-off events.

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The remaining 10 billion pounds, from stronger-than-expected tax revenues, would be enough to pay for another three months of subsidies for households hit by soaring energy bills and another 12-month freeze on fuel duty, but little else to ease the cost-of-living squeeze in the approaching 2023/24 financial year.

Hunt’s reticence now can also be seen as a choice. The Conservative Party needs all its support next year in order to defeat the Labour Party’s huge opinion poll lead. A national election is expected for 2024.

“The reason he’s waiting until next year isn’t really the fiscal rules, is it? It’s the election timetable,” Torsten Bell, Chief Executive of Resolution Foundation spoke at a discussion panel about this week’s budget.

BNP Paribas analysts also stated that Hunt would prioritize tax cuts in advance of next year’s election. This means Hunt would likely use half the $30 billion in public funds in his plan next week.

GLOOMY EXPRESSION?

Hunt could have less future flexibility if Britain’s fiscal watchdog becomes more negative about Britain’s economic outlook as it forecasts the budget.

The Office for Budget Responsibility has been more optimistic about growth in the past than the Bank of England.

In its November forecast, the OBR stated that while gross domestic product will decline by 1.4% in 2019, it will grow by 1.3% to 2.6% by 2024 and 2025.

The BoE stated last month that GDP will not grow in 2024 or 2025, despite a 0.5% drop in 2023.

Even if gas prices have fallen, this will not prevent a recession. However, there are still risks to the economy from a lack of skilled workers, productivity issues and after-effects of Brexit.

Britain is currently the only Group of Seven nation whose economy hasn’t recovered from its pre-pandemic level.

Hunt said that he would include economic growth measures into the budget. These could include ways to combat the shrinking workforce. Researchers and business groups believe that, among all the moves Hunt might make, addressing childcare issues would be more effective in achieving greater economic growth.

Hunt will also announce tax incentives for businesses, which are expected to boost productivity. The corporation tax rate rises from 19% to 25% in April to 25%.

($1=0.8430 pounds)

(Writing and graphics by William Schomberg. Editing by Josie Kao.