Chancellor of the Exchequer Jeremy Hunt said the UK Treasury is “unlikely” to have any extra headroom for tax cuts or other giveaways in the autumn statement because soaring interest rates have blown a hole in the public finances.
(Bloomberg) — Chancellor of the Exchequer Jeremy Hunt said the UK Treasury is “unlikely” to have any extra headroom for tax cuts or other giveaways in the autumn statement because soaring interest rates have blown a hole in the public finances.
Speaking to Bloomberg TV, Hunt said there won’t be more money to spend because inflation has been “stickier and debt interest payments higher.” He added that the priority in the update due on Nov. 22 will be to bring down inflation.
“We have to be careful not to pump extra money into the economy, into people’s pockets as that can push up prices and keep inflation higher for longer,” Hunt said Monday in the interview in New Delhi after a summit of leaders from the Group of 20 nations.
The remarks will disappoint members of Parliament from the ruling Conservative Party, who are hoping for more favorable economic winds and largess from the Treasury ahead of an election widely expected next year. Britain’s has some of the highest inflation levels in the Group of Seven and has lagged other nations with an almost stagnant economy.
Hunt stressed that his observations were “speculation” since the final judgment on the fiscal room for maneuver will come from the the independent Office for Budget Responsibility. At the March budget, Hunt had just £6.5 billion ($8.1 billion) to spare against his fiscal rules, the smallest on record.
Bloomberg UK Politics: The Jeremy Hunt Interview (Podcast)
Hunt was speaking about progress on a trade deal with India and relations with China following allegations about a spy operating in Parliament. The Chinese and the individual have denied the claims.
Prime Minister Rishi Sunak must hold an election in January 2025 at the latest and is under growing internal pressure to loosen the tax burden, which has reached its highest level since World War II.
Soaring interest rates have wiped out Hunt’s fiscal headroom, giving him little scope for giveaways. To fund tax cuts, the chancellor needs to find savings. One area he is looking at is the welfare system where costs have exploded, due to health benefits and state pensions.
The chancellor also signaled that he will be unveiling a series of pro-growth policies in the coming weeks to boost the economy and improve the fiscal position.
Economists, including Institute for Fiscal Studies director Paul Johnson, have said politicians need to be honest that growth is so weak taxes are more likely to rise than fall.
Asked if Johnson was right, Hunt said: “He is right. If we don’t change course we are going to see taxes going up. How do we change course? You’re going to be hearing a lot from me in the weeks and months ahead about how we increase our growth levels.”
“How do you increase growth? A few things. First of all, you make it easier for businesses to recruit the workers they need so they don’t have to put up salaries and put up their prices.”
“Secondly, you have to get inflation under control. And thirdly, you have to boost business investment. And that’s why I’m here in India.”
On India, Hunt said he hopes a deal will be done before the year end. “It just depends on what happens in the next few weeks. What I would say is I sense real political momentum. I think both prime ministers would like to see if there’s a way to do a deal.”
–With assistance from Tom Rees.
(Updates with comments from interview.)
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