Rishi Sunak has denied that his economic plans will lead to a new round of UK austerity. However, the official fiscal watchdog has warned that his tax-cutting strategies assume a significant squeeze on overstretched public services.
The British Prime Minister said in a recent interview that any comment or accusation like this is not true.The government already spends a large amount of money from the people. I would rather the government spend less money and focus on improving efficiency in the public sector.
Sunak spoke in London before the UK Global Investment Summit, which was attended by Stephen Schwarzman from Blackstone and Jamie Dimon, the CEO of JPMorgan Chase & Co.The government announced that it will announce £29.5 billion (about $37.2 billion) in new investment at the summit. However, £10 billion had already been made public.
Sunak is sensitive to the “austerity label” as he attempts to close an approximately 20-point polling gap with Labour Party ahead of general elections expected next year. The last time Britain experienced austerity was under the leadership of David Cameron, who is now Sunak’s foreign secretary. Its legacy can still be felt in many areas of the public sector such as social care and the justice system.
The UK government has been facing criticism for considering more tax cuts. Chancellor Jeremy Hunt recently announced £21 billion in giveaways and tax cuts for businesses and individuals.The Office of Budget Responsibility says that the tax cuts are funded by a £19billion reduction in real government spending following the next general elections.
The Institute for Fiscal Studies deemed these spending cuts “questionable if not implausible” in a manner that could render the plan unsustainable. Departments like Justice where prisons are bursting with prisoners will face 3.4% cuts a year until 2028.
After the election, the tight budgets will present a challenge to the next government. They’ll have to choose between increasing taxes or reducing public services.
Sunak admitted in the interview that he was trying to reduce state expenditures to pay for tax reductions. He stated that he intended to go beyond the two percentage point reduction announced by Hunt in the headline rate for national insurance. He uses the term “efficiency” to try to avoid being accused of austerity.
He said that the tax cuts were just the beginning of a journey. “When we are able to do more, we will because this is the direction we’re going in.”
Hunt’s pivot to tax cuts is a response to the intense pressure he faces from his Conservative Party, who are pushing to lower the overall burden. The burden has already reached a high post-war level even after Hunt announced. The government attributes the increase mainly to pandemic expenses and aid for households facing higher energy costs following Russia’s invasion of Ukraine.
This move is also a pre-election strategy. Tory MPs worry about being punished for the rising cost of living. This makes it hard to use the Conservatives’ usual attack line that Labour is the party of higher taxation.
The tax cuts have brought the Bank of England’s efforts to control inflation back into the spotlight. Sunak and Hunt argued months ago that they could not cut taxes until the inflation was under control. In October, they declared success in achieving their goal to reduce inflation by half. However, the rate is still higher than the central bank’s target of 2%.
Sunak said that his government was boosting labor supply, and was being disciplined in both borrowing and wage settlements for the public sector. He said this would continue to fight rising prices.
He said, “We are not fueling inflation.” “We’re being sensible.”
Sunak, speaking ahead of the Investment Summit, said that he was confident about the UK’s investment prospects, even though the OBR had downgraded Britain’s growth predictions last week.
Sunak: “I believe there is real momentum in the economic growth,” Sunak said. “I am very optimistic about the UK’s long-term economic growth prospects.”