With eye on election, UK’s Hunt cuts taxes in bid to boost economy By Reuters

By David Milliken and Kylie MacLellan

LONDON (Reuters) – British finance minister Jeremy Hunt said on Wednesday he would cut taxes for workers before an expected 2024 election and he gave businesses permanent investment incentives in a bid to speed up an economy that looks stuck in a slow growth rut.

Hunt announced big increases in welfare payments and the state pension alongside a bigger-than-expected, 2 percentage-point cut in the rate of social security contributions for employees, along with a smaller cut for self-employed workers.

“After a global pandemic and energy crisis, we have taken difficult decisions to put our economy back on track,” Hunt said at the start of his Autumn Statement budget update speech.

“Rather than a recession, the economy has grown. Rather than falling as predicted, real incomes have risen. Our plan for the British economy is working. But the work is not done.”

The government’s fiscal forecasting office served up a bleaker assessment of the outlook.

It said inflation would be more persistent than previously thought and living standards would remain 3.5% lower in the 2024/25 financial year than their level before the pandemic.

And despite the tax cuts announced by Hunt on Wednesday, the overall burden of taxation was still due to rise in each of the next five years to reach a post-World War Two high of 38% of GDP, the Office for Budget Responsibility said.

Hunt pointed to OBR forecasts showing the government was on course to meet its targets for the public finances, leaving open the possibility of further pre-election giveaways to voters in his full budget statement expected in early 2024.

But the OBR said his 13 billion-pound ($16.20 billion) room for manoeuvre remained about half the average level that his predecessors have had since 2010, laying bare the fiscal constraints on the government.

Hunt said measures in his plan announced on Wednesday would increase business investment by around 20 billion pounds ($25 billion) a year within a decade, or nearly 1% of GDP.

“That is the biggest ever boost for business investment in modern times,” he said.

WEAK GROWTH

But in the short term, at least, Britain’s economy looks stuck in slow gear.

Gross domestic product is expected to grow by 0.7% in 2024, much weaker than the expansion of 1.8% forecast in the OBR’s previous outlook, published in March.

The OBR also said economic output would grow by 1.4% in 2025 and by 1.9% in 2026 – weaker than its previous forecasts of 2.5% and 2.1% respectively.

Britain’s economy has struggled with high inflation and the new OBR forecasts showed the consumer price index was expected to grow by 2.8% next year, up from the March forecast of 0.9%.

Sunak this week promised “responsible” tax cuts, mindful of last year’s “mini-budget” turmoil in financial markets triggered by his predecessor Liz Truss’s plans for much bigger tax cuts.

This time last year, the newly installed Sunak and Hunt raised taxes sharply to quell the bond market mayhem, and the current parliament is seen on track to have introduced the biggest tax increases of any UK legislature since World War Two.

Britain’s economy has been burdened by the highest inflation rate among its rich country peers although the pace of price growth has slowed from more than 11% just over a year ago to 4.6% in October.

The budget watchdog’s new forecasts pointed to a slightly slower pace of government borrowing in the coming years – on average 700 million pounds less per year than forecast in March.  

($1 = 0.8025 pounds)