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UK finance minister likely to promise tax cuts before election

Earlier this month, British Chancellor of the Exchequer Jeremy Hunt said Britain would not go into recession this year.

Hannah McKay | Reuters

LONDON – Economists expect British Chancellor of the Exchequer Jeremy Hunt to take advantage of a small fiscal windfall with modest tax cuts in Wednesday’s spring budget.

Hunt offers sweetener to voters ahead of what is likely to be the Conservative Party’s last fiscal event before the upcoming general election, with Hunt trailing main opposition Labor by more than 20 points in national polls. are under pressure to do so.

But he must also overcome the constraints of weak public finances and recent economic stagnation. entered a moderate technological recession.

On the positive side, inflation is falling faster than expected and market interest rate expectations are well below where they were initially. Mr. Hunt’s November Fall Statement.

“Overall, Hunt’s fiscal space has probably increased, but only by a small amount and nowhere near the space in his autumn statement,” said Sanjay Raja, senior economist at Deutsche Bank. said. In research notes on Thursday.

The German financial institution estimates that the government’s fiscal space will increase from about 13 billion pounds (about $16.46 billion) to about 18.5 billion pounds, and says it is “very likely” that tax cuts will be the first call. ”. Mr. Raja suggested that the finance minister may be cautious about easing fiscal policy, prioritizing support on the supply side rather than stimulating demand.

“In our view, supply-side measures are more likely, especially given the Bank of England’s flexibility in monetary easing,” Mr. Raja said.

“National Insurance Contribution (NIC) tax cuts and child benefit changes are therefore likely to be delivered in the Spring Budget (as opposed to previous expectations for income tax cuts).”

Deep cuts to National Insurance were a highlight of Hunt’s autumn statement, but Economists were quick to point out That benefit to payers would be more than offset by the effect of the existing freeze on the personal income tax base, known as the “fiscal drag.”

UK National Insurance is a tax levied on workers’ income and employer profits to pay state social security benefits, including the state pension.

Mr. Raja also suggested that an extension of the government’s current fuel tax freeze remains a possibility, and that some spending cuts are likely to be used to partially offset fiscal policy easing. did.

Deutsche Bank expects Mr Hunt to deliver a net £15bn of relief in the next financial year, falling to around £12.5bn over the medium term.

“The fiscal outlook remains fragile. Small changes in the macroeconomic outlook can lead to big changes in public finances,” Mr. Raja said. “We continue to walk a fine line between the two.”

“Certainly there are big questions about public finances, including whether spending cuts and limited increases in some areas are realistic to deal with the growing burden on public services, and the government’s own ambitions on net zero, defense and overseas. It is certain that there remains ‘development costs. ”

Economists at BNP Paribas expect more modest tax cuts worth around £10bn to be delivered across the 2024/25 financial year, with the government expected to start the year with a fiscal profit of around £11bn. are doing.

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The Banque de France agreed that the cuts were aimed at stimulating labor supply and would have “little impact on inflation and thus on the Bank of England”.

In a research note entitled ‘Last Chance Tavern’, economists Matthew Swannell and Dani Stoilova write: ‘The government could spend £10bn from short-term fiscal windfalls, freeing up additional medium-term fiscal space for private individuals. “Our basic scenario is to use the money for tax cuts.” . ”

They also announced that the Treasury would postpone the March 2024 fuel tax rise for a further 12 months at a cost of £3.7bn a year, and that a permanent cut in the basic rate of income tax would be implemented at a cost of £2-3. We expect to introduce a reduction in pence. 6,073,500,000 pounds per year.

“The overall effect of this policy package will be to restore medium-term fiscal space to almost its original £12.7bn,” they added.

“With the Conservatives trailing in opinion polls and the Budget likely to be the last chance to ease fiscal policy before the general election, Hunt is once again likely to spend at least the additional fiscal space available. I look forward to doing that.”

Summarize this content to 100 words Earlier this month, British Chancellor of the Exchequer Jeremy Hunt said Britain would not go into recession this year.Hannah McKay | ReutersLONDON – Economists expect British Chancellor of the Exchequer Jeremy Hunt to take advantage of a small fiscal windfall with modest tax cuts in Wednesday’s spring budget.Hunt offers sweetener to voters ahead of what is likely to be the Conservative Party’s last fiscal event before the upcoming general election, with Hunt trailing main opposition Labor by more than 20 points in national polls. are under pressure to do so.But he must also overcome the constraints of weak public finances and recent economic stagnation. entered a moderate technological recession.On the positive side, inflation is falling faster than expected and market interest rate expectations are well below where they were initially. Mr. Hunt’s November Fall Statement.”Overall, Hunt’s fiscal space has probably increased, but only by a small amount and nowhere near the space in his autumn statement,” said Sanjay Raja, senior economist at Deutsche Bank. said. In research notes on Thursday.The German financial institution estimates that the government’s fiscal space will increase from about 13 billion pounds (about $16.46 billion) to about 18.5 billion pounds, and says it is “very likely” that tax cuts will be the first call. ”. Mr. Raja suggested that the finance minister may be cautious about easing fiscal policy, prioritizing support on the supply side rather than stimulating demand.”In our view, supply-side measures are more likely, especially given the Bank of England’s flexibility in monetary easing,” Mr. Raja said.“National Insurance Contribution (NIC) tax cuts and child benefit changes are therefore likely to be delivered in the Spring Budget (as opposed to previous expectations for income tax cuts).”Deep cuts to National Insurance were a highlight of Hunt’s autumn statement, but Economists were quick to point out That benefit to payers would be more than offset by the effect of the existing freeze on the personal income tax base, known as the “fiscal drag.”UK National Insurance is a tax levied on workers’ income and employer profits to pay state social security benefits, including the state pension.Mr. Raja also suggested that an extension of the government’s current fuel tax freeze remains a possibility, and that some spending cuts are likely to be used to partially offset fiscal policy easing. did.Deutsche Bank expects Mr Hunt to deliver a net £15bn of relief in the next financial year, falling to around £12.5bn over the medium term.”The fiscal outlook remains fragile. Small changes in the macroeconomic outlook can lead to big changes in public finances,” Mr. Raja said. “We continue to walk a fine line between the two.”“Certainly there are big questions about public finances, including whether spending cuts and limited increases in some areas are realistic to deal with the growing burden on public services, and the government’s own ambitions on net zero, defense and overseas. It is certain that there remains ‘development costs. ”Economists at BNP Paribas expect more modest tax cuts worth around £10bn to be delivered across the 2024/25 financial year, with the government expected to start the year with a fiscal profit of around £11bn. are doing.The Banque de France agreed that the cuts were aimed at stimulating labor supply and would have “little impact on inflation and thus on the Bank of England”.In a research note entitled ‘Last Chance Tavern’, economists Matthew Swannell and Dani Stoilova write: ‘The government could spend £10bn from short-term fiscal windfalls, freeing up additional medium-term fiscal space for private individuals. “Our basic scenario is to use the money for tax cuts.” . ”They also announced that the Treasury would postpone the March 2024 fuel tax rise for a further 12 months at a cost of £3.7bn a year, and that a permanent cut in the basic rate of income tax would be implemented at a cost of £2-3. We expect to introduce a reduction in pence. 6,073,500,000 pounds per year.“The overall effect of this policy package will be to restore medium-term fiscal space to almost its original £12.7bn,” they added.“With the Conservatives trailing in opinion polls and the Budget likely to be the last chance to ease fiscal policy before the general election, Hunt is once again likely to spend at least the additional fiscal space available. I look forward to doing that.”
https://www.cnbc.com/2024/03/04/last-chance-saloon-uk-finance-minister-expected-to-pledge-pre-election-tax-cuts.html UK finance minister likely to promise tax cuts before election

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