Britain cuts taxes again. Why now?

Britain cuts taxes again.  Why now?

At least eleven times a year, Britain’s top finance official stands up in Parliament to present his plans – this has always been the case until now – for tax and spending, which are normally intended to support growth economic and to control the country’s debt. This year, Jeremy Hunt, the Chancellor of the Exchequer, had to consider another priority: the upcoming general election.

On Wednesday, Mr Hunt announced he would cut taxes for almost 30 million workers. Starting next month, the National Insurance rate, a payroll tax paid by workers and employers that funds state pensions and some social benefits, will be reduced by two percentage points for employees and self-employed workers. This will save the typical employee around 900 pounds ($1,145) a year, Mr Hunt said.

A year and a half ago, tax cuts and a plan to boost economic growth sent shockwaves through financial markets and ultimately forced Liz Truss to step down as prime minister. This time, the pound sterling and government bonds barely moved.

This is explained by the fact that the tax cuts announced by the Conservative Party are smaller and, above all, partly offset by other tax increases. And Mr. Hunt has not announced much additional spending.

The policy changes were also accompanied by forecasts of their economic and fiscal impact by the Office for Budget Responsibility, an independent watchdog.

Less than four months ago, Mr Hunt cut the National Insurance tax rate. This has not done much to improve the Conservative Party’s position in the polls, where it is far behind the opposition Labor Party. It is hoped that further cuts will win favor with voters as the government hopes the wider economic outlook improves. Falling inflation should help workers benefit more from pay rises, and the Bank of England is expected to cut interest rates later this year, which should ease pressure on household budgets.

The British would prefer that the government focus on funding public services rather than tax cuts, according to a recent YouGov poll. But what they want even more is for the government to spend money reduce the cost of living, such as measures to reduce food or energy bills. (The polls did not specify what these measures would be.)

There is a clear sense of frustration with public services, with eight in ten Britons saying they are in poor condition, according to YouGov polls.

Economists say the government urgently needs to increase investments, which was weakened in order to keep public debt low. Over the next five years, public sector net investment as a percentage of gross domestic product is expected to decline, according to forecasts from the Office for Budget Responsibility.

Public services are under enormous pressure: more than seven million patients are waiting to be treated by the National Health Service and dentists are not taking patients. Last year, schools were ordered to close because of crumbling concrete, and prisons were allowed to release some people early because of overcrowding. Another sign of tension is in local government, where several councils – the local government bodies that fund services such as child and adult care, as well as waste collection and recycling – have recently themselves declared bankrupt.

Anyway more government money was set aside As for councils, many have yet to announce radical cuts. Although some councils have made poor financial decisions, these have been compounded by a long-term decline in national government funding.

Tuesday, Birmingham City Councilone of England’s biggest, has approved sweeping cuts including a plan to end all its arts funding as part of a plan to save £300m over the next two years.

The chancellor’s budget choices are bound by three budgetary rules that Mr Hunt set for himself and which have recently come under criticism. The rule considered most erroneous is that debt as a percentage of GDP must decline by the fifth year of the economic forecast.

Not only does the rule rely on long-term projections that are subject to change, but it also means that certain policies and programs will be stopped to ensure that debt falls over the past year, fueling frustrations with short-term thinking in the development of economic policies.

The National Institute of Economic and Social Research “has long argued that the fiscal framework needs to be overhauled,” said Stephen Millard, its deputy director. “By discouraging public investment, the current framework acts as a constraint on growth. »

Over the next four years, the so-called underlying debt will increase, according to the Office for Budget Responsibility. But it will fail in the fifth and final year of the forecast, allowing Mr Hunt to stick to his budget rule.

But “these forecasts are based on budgetary fantasies,” according to Michael Saunders, economist at Oxford Economics and former rate regulator at the Bank of England. Forecasts call for an increase in fuel taxes, even though they have been frozen for 14 years and almost no one expects them to increase, he said. And they rely on “a painful squeeze on public spending,” he added, for which there is no “credible plan” to implement.

The government only detailed ministries’ daily spending until next March, with very little information after that.

The government has set out some specific priorities: it will keep defense and overseas aid spending constant as a percentage of GDP, increase funding for childcare, provide more money to the NHS and leave spending schooling unchanged after adjusting for inflation.

But that means everything else — so-called unprotected government services, like courts, prisons and local governments — face deep cuts. Spending is expected to decline by more than 2 percent a year after the election, according to the Office for Budget Responsibility. Per-person spending on public services will not increase over the next five years, when adjusted for inflation, the watchdog said.

Economists have said that because of the poor state of some public services, such deep cuts seem impossible to achieve.

The Resolution Foundation, a think tank, estimates that unprotected public services will face £19 billion in cuts after the election. The idea that will come to fruition is a “tax fiction”, declared Torsten Bell, its managing director.

The tax cuts create a stark choice for whichever party wins the election: maintain existing spending plans and further cut public services, or find more money, which will likely involve raising taxes.

“Whoever is chancellor at the time of the next spending review,” said Paul Johnson, director of the Institute for Fiscal Studies, “might have preferred to choose another area of ​​work.”

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David B.Otero

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