Economy

UK still has a budget deficit of 40 billion pounds


© Stocksak. FILEPHOTO: British Pound coins are shown in front of the displayed stock chart in this illustration taken on November 9, 2021. REUTERS/Dado Ruvic/Illustration/File Photo

By David Milliken

LONDON (Stocksak). Britain still faces a budget deficit of 40 billion pounds ($46 trillion), according to a think tank.

The Resolution Foundation, which focuses attention on issues faced by low- and medium-income households, stated that Rishi Sunak, the new Prime Minster, and Jeremy Hunt, the Finance Minister, had to make difficult choices before a Nov. 17 budget statement.

James Smith, Resolution Foundation’s research chief, stated that although the focus has been on improving post-Trussonomics conditions, the core picture still shows weaker growth and higher borrowing costs. This has left a fiscal gap of at least forty billion pounds to fill.

The last time the Office for Budget Responsibility published borrowing forecasts was March. Since then, the growth outlook has declined due to rising energy prices. Meanwhile, interest rates have risen globally and in Britain, increasing borrowing costs.

According to The Resolution Foundation, tax rises and spending reductions of at least 30 Billion Pounds are needed to ensure that debt falls as a proportion of gross domestic products by the 2026-27 financial years.

The think tank said that previous finance ministers had left at least 12 billion pounds of leeway in order to reach their budget goals.

The Institute for Fiscal Studies had previously estimated that Britain would face a budget deficit of 62 billion pounds following the tax-cut plan announced on Sept. 23 by Kwasi Kwarteng (Truss’s finance Minister).

This’mini budget’ drove sterling to a record low against U.S. dollars and forced the Bank of England into intervention in the bond market. Truss reversed some of the plans and sack Kwarteng, but too late to save her premiership.

According to the Resolution Foundation, cuts in investment spending appeal to British governments looking to save money. However, this would come at a cost of longer-term growth and raise only 10 billion pounds.

High inflation meant that government departments, who mainly have fixed-cash budgets, were already facing 22 billion pounds in real-terms cuts by 2024-25. This limit the potential for further savings and creates pressure for additional spending.

The government is reviewing an earlier promise to increase pensions, welfare benefits and keep inflation in line with inflation. It will cost approximately 9 Billion pounds.

Truss’s tax cuts, which amount to 17 billion pounds, are still in place. This is largely due in part to the reverse of a 15-billion pound increase in payroll taxes implemented by Sunak while he was finance Minister.

Smith stated, “Further austerity is also likely for public services, but there’s a limit to how large these can credibly become.” “This reality makes it likely that the Autumn Statement will include tax increases and not just spending cuts.

($1 = 0.8692 pounds)

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