UK Prime Minister Rishi Sunak is seeking to build a buffer in the public finances as he draws up an economic plan to plug Britain's budget shortfall, which could entail tax hikes and spending cuts totalling as much as £50 billion (S$81.4 billion).
Sunak and Chancellor of the Exchequer Jeremy Hunt want the extra headroom over and above the UK's £35 billion fiscal hole so that the package has credibility with the markets, an official familiar with the matter said. Another said that could entail spending cuts and tax rises closer to £50 billion, a figure widely reported in the British media on Friday (Oct 28). Both spoke on condition of anonymity because the plans are unpublished.
Britain's new premier is trying to restore calm to the financial markets after his predecessor, Liz Truss, sparked turmoil during her 7-week tenure with a massive package of unfunded tax cuts that tanked the pound to an all-time low against the dollar and sank the gilts market.
Sunak and Hunt on Wednesday delayed a planned economic statement to Nov 17 from Oct 31 to give them more time to make what the premier described as the "right decisions" to manage the British economy.
The two men held a "sober" meeting on Thursday to run through their options, one of the officials said. They were shown recent data that demonstrated the markets had stabilised in recent days but that Britain still faces serious challenges, with growth still depressed by high gas prices and stubborn supply chain issues as a result of the Covid-19 pandemic and Russia's invasion of Ukraine.
Moreover, they were told that growth is likely to be considerably lower than the most recent official forecasts from the Office for Budget Responsibility, the person said. That will have the knock-on effect of lowering projections for tax revenue, increasing the size of the budget hole to fill, they said.
Sunak and Hunt are trying to chart a path to sustainable public finances that's likely to rein in some of the excesses of the previous two premiers. As well as reversing much of Truss's tax cuts, some of her predecessor, Boris Johnson's infrastructure spending pledges are also likely to be under the microscope. People familiar with the matter told Bloomberg earlier this week that the Treasury has drawn up a list of 104 options to cut spending. BLOOMBERG