| 10 December 2023, Sunday |

UK faces 50 billion pound fiscal hole, government sources say

According to two government sources, British Finance Minister Jeremy Hunt will aim to close a $57 billion deficit in the nation’s public budget with roughly $30 billion in spending cutbacks and $20 billion in tax increases.

On November 17, Hunt is scheduled to give a financial statement to the legislature. After his predecessor Kwasi Kwarteng’s tax-cutting plan on September 23 drove the value of the pound to a record low versus the dollar and ultimately led Liz Truss to resign as prime minister, he will work to restore market confidence.

Britain’s Guardian newspaper reported on Sunday that early drafts of Hunt’s statement included up to 35 billion pounds of spending cuts and 25 billion pounds of tax rises, while on Monday the Financial Times gave figures of 33 billion pounds and 21 billion pounds respectively.

Asked about these estimates, two government sources told Reuters that they were within the right ballpark, but that final figures were subject to change.

Britain’s finance ministry declined to comment on either estimate.

Last week a finance ministry source said broad-based tax rises were likely to fill a “fiscal black hole”.

Britain’s last set of budget forecasts was published in March, when they showed 28 billion pounds of headroom to meet a government target to reduce debt as a share of the economy.

Most of the 45 billion pounds of unfunded tax cuts which Kwarteng announced were rapidly reversed, apart from a 16-billion-pound cut in payroll taxes which took effect on Nov. 6.

Short-term government borrowing costs are broadly back to where they were before Kwarteng’s statement, but longer-term borrowing costs are somewhat higher, and the economic outlook is bleak.

To ensure that public debt decreased as a share of GDP over the long term and to provide a 12-billion-pound buffer against unforeseen shocks, according to an estimate made by Britain’s Resolution Foundation last month, Hunt would need to declare 40 billion pounds of fiscal austerity.

  • Reuters