- To deliver budget, spending plans around 11:30 am GMT
- Capital spending is expected to increase
- Increased funding for health and other ministries
- But some ministries face new pressure
- Improving growth outlook gives Sunak some leeway
LONDON, Oct.27 (Reuters) – Finance Minister Rishi Sunak will try to show he is pulling Britain out of the coronavirus pandemic on Wednesday by announcing multibillion pound investments to help Prime Minister Boris Johnson stick to it its promises of spending to voters.
But Sunak, who has racked up the biggest peacetime budget deficit to fight COVID-19, will keep a tight grip on the day-to-day spending of many ministries, which could slow Britain’s still incomplete recovery.
In addition to a budget update – which for once should not include emergency stimulus measures – Sunak will announce a three-year spending plan with investments in public transport, vocational training and other plans to advance Johnson’s plan to “upgrade” poorer regions. .
Newspapers said it should ease the blow to low-income households who recently lost a COVID emergency top-up to social assistance payments and are facing higher inflation.
Sunak will also try to restore the government’s low-carbon image before Britain hosts the COP26 climate summit starting next week.
“Today’s budget begins the work of preparing for a new post-COVID economy (…), an economy worthy of a new era of optimism,” Sunak is expected to say, according to excerpts from his speech published by the Ministry of Finance.
The fact that Sunak can focus on additional spending in his speech to parliament – which is expected to start around 11:30 a.m. GMT – is due not only to stronger economic growth forecasts, but also to a sharp increase in taxes for workers and citizens. employers announced in September.
Businesses face an additional tax hike in 2023.
“Sunak, a conservative chancellor, presides over a tax burden that has reached its highest sustained level in history,” Paul Johnson, director of the Institute of Fiscal Studies, a non-partisan think tank, wrote on Monday.
Britain’s economy suffered a collapse of nearly 10% last year after the country was slower than others to shut down its economy to avoid coronavirus contagion, and ended up spending more time in lockdown -out.
Nevertheless, an upward revision of UK growth forecasts on Wednesday will give the government additional leeway.
Bond traders polled by Reuters expect to borrow this fiscal year at 190 billion pounds ($ 261 billion), down 44 billion pounds than the government forecast in March and equivalent to around 8% of gross domestic product. .
SPEND HERE, PRESS HERE
Sunak, a former Goldman Sachs analyst, has pre-announced increased spending on healthcare, public transport in cities far from London and vocational training as well as lifting the public sector wage freeze.
However, many ministries will face further squeeze as Sunak establishes a new fiscal rule for the government. It should focus on balancing current spending and tax revenue over a three-year horizon.
Many economists say the goal seems achievable and could allow Sunak to cut taxes ahead of the next election, which is slated for 2024 but could take place sooner.
The Sun newspaper said Sunak would also pledge to reduce Britain’s debt by the next election.
In addition to a further rise in COVID-19 infections in Britain, a big risk for Sunak is that the recent surge in inflation turns out to be more stubborn than expected, potentially pushing up the cost of the disease sharply. government debt.
About a quarter of UK gilts are indexed to inflation, a higher share than most other wealthy economies.
A 1 percentage point hike in interest rates and inflation would cost taxpayers around £ 25 billion a year, according to government estimates.
This would be double the money Sunak plans to raise with his increase in social security contributions to fund health and social care services.
Borrowing costs could start to rise as early as next week when the Bank of England is due to announce its November policy decision amid inflation on track to hit 5%, more than double its target.
($ 1 = 0.7272 pounds)
Written by William Schomberg Edited by Mark Heinrich and Alexander Smith
Our Standards: Thomson Reuters Trust Principles.