Written by William Schomburg
LONDON (Reuters) – Britain’s new Chancellor of the Exchequer Rachel Reeves said on Wednesday that she would seek billions of pounds in additional borrowing to overhaul the economy, as well as to fix the worst decline in public services over the past 30 years. He is expected to announce what could be the biggest tax increase yet.
In its first budget after 14 years in Conservative government, the Labor government is betting it can meet its election promises without triggering the kind of bond market turmoil that ousted former prime minister Liz Truss in 2022.
Labor promised voters it would cut long waiting lists in the state health service, build more housing and improve schools.
“It’s up to this Labor Party, this Labor Government, to build Britain back again,” Reeves said in excerpts of his budget speech shared with the media on Tuesday.
Four months on from the election, Chancellor Keir Starmer has announced that “broad-shouldered people” will pay more in tax under the budget plan that Reeves is expected to present to Parliament at around 12:30pm Japan time. He said he would have to.
Mr Reeves claimed Britain’s previous Conservative government left an undisclosed £22bn hole in the public finances, a claim rejected by his predecessor Jeremy Hunt.
Businesses face rising social security costs, which, together with planned new protections for workers and a rise in the minimum wage, undermine Labor’s promise to transform Britain into a fast-growing G7 economy. There is a possibility that
Pollster Savanta announced in October that its measure of business optimism was the lowest since Labor won government in July, as well as its recent consumer confidence survey.
Savanta consultant Matt McGinn said: “Keir Starmer and Rachel Reeves will be concerned about how quickly the long-standing friendship between the companies has fizzled.”
The wealthiest Britons are also likely to face increased taxes on capital gains, dividends, inheritances and assets held abroad, further pushing up the country’s tax burden, which is already the highest since just after World War II. It will be done.
Government sources say Reeves is planning a fiscal package worth around 40 billion pounds ($52 billion), mainly through tax increases, to meet his pledge to cover day-to-day spending.
According to the Institute for Fiscal Studies think tank, the £40bn tax increase is equivalent to 1.25% of economic output, the only time this has been exceeded in recent history since 1993, and will be used to shore up public finances. There was a Conservative budget plan that increased taxes. recession and currency crisis.
billions of dollars in debt
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Mr Reeves reassured investors that as well as raising taxes to cover day-to-day spending, borrowing for public investment is expected to increase by £20bn, which will be positive for the world’s sixth-largest economy. will try.
“The only way to drive economic growth is to keep investing, investing, investing,” Reeves said in excerpts from his speech. “There are no shortcuts. To make that investment happen, we need to restore economic stability.”
Reeves said the government plans to ease self-imposed fiscal rules to allow for the infrastructure investment needed to accelerate growth.
Reported rule changes will allow for an additional 53 billion pounds ($69 billion) to be borrowed, causing mild anxiety in bond markets this month.
Bond dealers polled by Reuters expect government borrowing to rise to £105bn this financial year from the Office for Budget Responsibility’s March estimate of £87bn, marking the second-highest level of bond issuance on record. The amount needs to be increased to £294 billion.
But bond strategists and fund managers say they are confident Mr. Reeves, a former Bank of England economist, will not create the same hole in Mr. Truss’s finances.
Unlike in 2022, when Mr. Truss shocked already nervous financial markets with his tax cut plan, interest rates have fallen in the world’s rich countries, giving Mr. Reeves a bit more leeway.
Economist Peder Beck Fleiss said: “The new debt target could allow for further spending in the future, perhaps in a second period, but the government will need to proceed with policy carefully and once it has established credibility.” “We are likely to ease policy only if market conditions change.” Cooperation with global bond investor PIMCO.
($1 = 0.7691 pounds)
(Writing by William Schomberg; Editing by Gareth Jones)
