Chancellor of the Exchequer Jeremy Hunt is seeking to fill a fiscal shortfall of GBP35 billion ($56.56 billion) when he sets out the government’s tax and spending plans next month, officials familiar with the matter said.
The government has drawn up a menu of 104 options to cut spending to get public finances back onto a sustainable track, according to the officials, who cited Treasury and Office for Budget Responsibility data from this week.
Asked about the GBP35 billion figure at a regular briefing on Wednesday, Prime Minister Rishi Sunak’s spokesman called it “speculative.”
Both Hunt and Sunak -- who took office on Tuesday -- delayed a planned economic statement to Nov 17 from Oct 31 to give them time to make what the premier described as the “right decisions” to manage the British economy. The government also upgraded the status of the program from a “medium-term fiscal plan” to an Autumn Statement -- a form of interim mini budget.
The delay means the Bank of England will now make its next interest rates decision on Nov 3 without knowing the government’s plans in full. Hunt told broadcasters he had discussed the delay with the central bank.
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There’s a potential advantage for Hunt in delaying, because it gives the fiscal watchdog a chance to incorporate the improvement in the gilt market when it assesses the viability of his economic plan -- as long as the picture doesn’t deteriorate dramatically again in the meantime.
It will “give us the best chance of giving people security over their mortgages, over their jobs, over the cost-of-living concerns everyone has,” Hunt said.
Markets were relatively unmoved by the announcement, with the yield on 30-year gilts rising 10 basis points to 3.77% and the pound holding gains to trade 0.8% stronger at US$1.1564 ($1.64).
See also: ECB holds rates and signals cuts are still some way off
Meanwhile Sunak told his new Cabinet that Hunt’s statement will set out how the government will get debt falling in the medium term, according to a readout of the meeting.
“Spending does need to be paid for,” Sunak later told the House of Commons.
The plan for a fiscal statement was first announced by Hunt’s predecessor, Kwasi Kwarteng, as he tried to calm markets that were roiled by the massive package of unfunded tax cuts he announced on Sept 23.
Kwarteng had planned it initially for late November, but brought it forward to Oct 31 as Liz Truss’s government came under fierce pressure to act as market instability drove up the cost of mortgages. In the end, Truss fired Kwarteng and replaced him with Hunt, who ripped up most of the tax cuts and warned that he would have to cut spending to get public finances back on track.
Foreign Secretary James Cleverly had earlier hinted at the delay during the government broadcast round. He was asked on BBC radio about the UK’s development aid commitment, which Sunak cut to 0.5% of national income from 0.7% when he was Chancellor, and which has been touted as a candidate for further cuts.
“I don’t think we are envisaging that,” Cleverly said. He reiterated that the government’s “ultimate desire” is to bring it back up to 0.7%.
In other developments:
- Asked in the House of Commons whether he would up-rate welfare payments in line with inflation, Sunak said: “We will always protect the most vulnerable”
- The prime minister’s press secretary said a final decision on whether to maintain the triple lock on pensions -- which guarantees payments rise by 2.5%, inflation or wages, whichever is highest -- will be made in the Nov 17 fiscal statement
