UK facing ‘painful’ cuts to fix public finances: study
BRITAIN faces “big and painful” cuts in public spending to fix state finances should it decide against more U-turns over recently-unveiled tax cuts, a leading think tank warned Tuesday.
The verdict from the Institute for Fiscal Studies (IFS) came one day after finance minister Kwasi Kwarteng brought forward a debt-reduction plan and economic forecasts after the budget spooked markets.
Kwarteng, whose official title is chancellor of the exchequer, has already been forced to axe a tax cut for the richest earners, in the face of outrage as millions of Britons face a cost-of-living crisis with UK inflation around 10 per cent.
The government of new Prime Minister Liz Truss last month sparked turmoil with a costly tax-cutting budget that triggered panic over ballooning state debt.
Her intention, to boost Britain’s recession-threatened economy, had the opposite effect, crashing the pound and pushing up the government’s repayments on borrowing.
“With a weaker economy, getting government finances on a sustainable path without cancelling tax cuts could force... big and painful spending cuts,” the IFS said in its study.
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Reducing debt “through spending cuts alone, without actually specifying which budgets would be cut, risks stretching credulity to breaking point”, it added.
Kwarteng needs fiscal tightening – spending cuts or tax hikes – totalling more than £60 billion (S$96.3 billion) just to stabilise debt levels by mid-2027, it added. Even with faster-than-expected economic growth, Kwarteng would need to find £40 billion, the IFS estimated.
“Cuts on this scale would require some big choices,” the research group noted. Fears are mounting over a new wave of austerity – similar to that seen after the global financial crisis – that will slash spending on public health and education.
This has so far been dismissed by the Truss administration. UK public borrowing is set to hit almost £200 billion in the country’s current fiscal year that ends next April – its third biggest amount on record, according to the IFS.
It has been higher only in the wake of the Covid pandemic and 2008 financial crisis. AFP
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