What to expect from the U.K. Autumn Budget statement

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According to published reports, the new Chancellor of the Exchequer Jeremy Hunt will address Britain’s parliament this Thursday with the announcement of an autumn budget, which is expected to increase tax increases and cut public spending by around £25 billion. ,

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When his predecessor Kwasi Quarteng stepped down – following his disastrous mini-budget fallout leading to his dismissal – Hunt reversed almost all mini-budget promises, backing away from a £45 billion tax cut that The markets were shaken. Its origin in September.

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Yield on 10 Year Gilt TMBMKGB-10Y,
It was down 1.1 basis points at 3.351% on Tuesday morning, but had hit a high of 4.514% after the mini-budget. Pound GBPUSD,
It was up 0.6% to $1.1829 on Tuesday. It declined below $1.04 after the Quarteng budget and hit an all-time low.

Here’s what to expect from Thursday’s announcement:

tax increases
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Hunt has already told sky News Everyone in Britain will end up “paying a bit more tax” over the weekend, and economists are estimating the value of the tax hike to be around £35 billion.

“We will demand sacrifices from everyone. But in a fair society, as we are in the UK, there is only so much you can ask of the lowest-income people,” Hunt said on Sunday.

Sanjay Raja, senior economist at Deutsche Bank, said the tax hike would be in the form of a stealthy increase, meaning a moratorium on tax-free personal income allowances and a moratorium on inheritance tax, pension tax and dividend tax at their current levels.

Reports also suggest that Prime Ministers Rishi Sunak and Hunt are considering lowering the additional tax threshold – from £150,000 to £125,000 – where the highest earners pay the highest rate of 45%. According to Hunt, “those with the biggest shoulders will carry the heaviest loads.”

King anticipates an increase in council tax and an increase in the “duration and scale” of an unexpected tax levied on energy companies to take away their profits, the latter of which could result in a net profit of £5 billion in revenue. .

economic recovery

“Frankly, the biggest surprise in the autumn statement is likely to be the lack of announcement of any shocks,” said Giles Coglan, chief market analyst at HYCM. ,

After official data emerged last week that the economy slowed in the third quarter and that Britain was expected to hit a recession before the end of the year, Hunt has said his goal is to contain the slowdown “as much as possible”. small and shallow”. To tackle 40 years of high inflation, which has battered UK household finances this winter along with high energy costs.

Although not everyone thinks it will be short and sweet. Bank of England said a few weeks ago It expects the UK to be in recession during 2023 and into the first half of 2024.

“Hunt needs to ensure that his plans to cut deficits and control inflation do not stifle economic growth by moving too quickly. In fact, of the G7 countries, the UK is the only one whose production is pre-COVID -19 sits below the levels,” Coglan said.

Analysts at Bank of America believe their projected 40/60 split between tax hikes and spending cuts will slow the economic recovery rather than worsen the slowdown.

“We view fiscal tightening as slowing Britain’s recovery from the ensuing recession rather than a deepening of that recession,” he said in a note.

spending cuts

Deutsche Bank analysts estimate Hunt will announce spending cuts of £20-25 billion over the next five financial years.

Jeremy Hunt’s tenure as former health minister during the Theresa May administration in 2018.

Dan Kitwood/Agence France-Presse/Getty Images

These are also likely to be made in the form of “stealth” reductions, i.e. modest cash deposits in government department budgets and “efficiency savings” made in the public sector, particularly in the public health service, the NHS.

Hunt, who has served as a former health minister, has addressed the prospect of spending cuts at the National Health Service, saying a lot of money has already been poured into the NHS.

“In this context where funding for the NHS is rising, we need to do everything we can to find the capacity,” He told the BBC.

Interestingly, Pantheon economists Samuel Tombs and Gabriella Dickens think Hunt will be looking for £50bn in savings by 2025/26, which they say could be “a little too grim” press reports from the weekend.

“What matters most for now, and especially for the MPC, is how much the fiscal tightening required in the upcoming financial year 2023/24 affects the economy,” he said in a note.

“If the Chancellor had a free hand, he would certainly have waited until 2025/26 to implement most of the consolidation, to give the economy some breathing room and to avoid spoiling his party’s prospects in the next general election.” But if concrete steps are taken to reduce borrowings next year, the gilt market will only consider the schemes credible,” he said.

energy support

The report suggests that after the current energy price guarantee expires in April, Hunt will announce an additional one-time handout to the most vulnerable to help with energy bills, expected to cost the government around £20 billion, King says.

Former Prime Minister Liz Truss’s energy price cap is still in place until April, which puts the average annual household energy bill at £2,500, although Hunt could announce an increase to £3,100.

“We have to understand that one of the reasons for the volatility after the mini-budget was that people were concerned that we were exposing British public finances to the volatility of the international gas market. Therefore, there must be some bottlenecks.” Hunt told the BBC.

Hargreaves Lansdowne’s ESG analyst Laura Hoy said the Treasury saved £260 million from unusually hot weather in October because of less demand for natural gas for heating.

“Improving efficiency during the colder months could have a similar effect, as it would reduce demand. This underscores the growing need to improve efficiency in the UK,” she said.

Credit: www.marketwatch.com /

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