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CNN
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United Kingdom Finance Minister Jeremy Hunt is set to announce a tax cut for workers on Wednesday when he unveils what is likely to be the government's last budget before the general election later this year.
Reducing National Insurance – a tax paid by people who work – It will likely cost around £10 billion ($12.7 billion), according to multiple British media reports. But soaring government debt, crumbling public services, and a lackluster economy leave the chancellor very little room to make more big giveaways.
UK economy will barely grow in 2023 Sliding into stagnation At the end of the year in stark contrast to Prime Minister Rishi Sunak has pledged economic growth. In 2024, the Bank of England expects output to expand by just 0.25%, while the International Monetary Fund expects growth of 0.6%.
Despite this bleak backdrop, Hunt is expected to offer an upbeat assessment of Britain's economic prospects.
“We can now help families experiencing permanent tax cuts.” According to a statement by the Ministry of Treasury. “Conservatives know that lower taxes mean higher growth. Higher growth means more opportunity and more prosperity.
Hunt's Conservative Party lags far behind the opposition Labor Party In the polls, he is under enormous pressure to unveil tax cuts – no matter how small – in a last-ditch effort 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 level High after the war Living standards fell. Economic output per capita It is still lower than it was at the end of 2019, when it has not fully recovered From a sharp decline during the epidemic, according to Office for National Statistics.
Meanwhile, the UK Government debt It has risen more than 40% since 2020, as the country has spent heavily to protect households and businesses from the impact of coronavirus lockdowns and rising energy costs in the wake of Russia's large-scale invasion of Ukraine.
At the end of January, public sector debt exceeded £2.6 trillion ($3.3 trillion), according to the Office for National Statistics, a level not seen since the early 1960s and roughly equal to the size of the country's annual gross domestic product. High interest rates pile up pain.
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The cost of servicing the growing debt pile is draining increasing amounts of money away from vital public services, which have already been squeezed by 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 turn off street lights as it tried to balance its books. The Local Government Association warned in December that councils in England face a £4 billion ($5.1 billion) funding gap this year and next.
Other areas are called “unprotected” at the national level The budget, such as social care and the police force, is also at risk. Spending on defence, schools, the National Health Service and foreign aid has been restricted for the time being.
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British Finance Minister Jeremy Hunt stands with a red budget box outside his office in Downing Street in London on March 6, 2024.
The government's current public spending plans look “implausible,” economists at Capital Economics wrote in a note last month, pointing to deep cuts in unprotected spending from next year.
“This seems unlikely when public services are deteriorating,” they added. “Whoever wins the election will likely need to recognize taxes and spending will have to increase.”
Capital Economics is not alone in pointing out that the government played fast and loose when talking about its spending plans. Its financial watchdog, the Office for Budget Responsibility, made a similar point recently.
OBR Chairman Richard Hughes He said In January, the government did not provide detailed details of departmental spending plans beyond March next year, providing only headline figures.
“Some people have referred to it as a work of fiction,” Hughes said.
He added: “Maybe this is generous, given that someone has bothered to write a work of fiction, while the government has not bothered to write the departmental spending plans that support its public service plans.”
Cutting future spending on public services to cover the costs of tax cuts now could be counterproductive. In a poll last month of nearly 2,000 British adults conducted by DeltaPol and the Tony Blair Institute, 52% said the government should invest any extra money it has to improve the quality and efficiency of public services. Only 11% believe the money should be used to cut taxes.
Hunt will deliver his budget announcement in Parliament from 7:30 a.m. ET.