LONDON – Britain’s top finance official on Wednesday set out a vision for the country’s post-pandemic economy, announcing plans to spend on education, the national health system and vocational skills. But his plans are in danger of being overshadowed by the recent rise in inflation and supply chain disruptions weighing down the pandemic recovery.
“Today’s budget draws no line under Covid, we have challenging months ahead,” Rishi Sunak, the Chancellor of the Treasury, told lawmakers in parliament on Wednesday. “But with today’s budget, the work of preparing for a new economy after Covid begins.” This would be an “economy fit for a new era of optimism,” he added.
The chancellor called for optimism even as the country approaches what is expected to be a difficult winter for many households and uncertainty about the path of the pandemic.
Inflation is forecast to rise above 4 percent, with a potential peak of around 5 percent, while energy price increases have hit household bills. There are ongoing disruptions and shortages in the supply chain, and the poorest families have seen that one of their main benefits for the government is austerity. The number of coronavirus cases has started to rise again – with an average of more than 46,000 daily cases last summer, up from around 2,000 last summer – and pressure on the government to re-impose some restrictions, such as mandatory face masks. , vaccine passports and advising people to work from home is on the rise.
Mr Sunak said rising prices are a global problem caused by economies opening up and demand for goods growing faster than businesses and their supply chains can handle.
“I understand people are concerned about global inflation,” said Mr Sunak. “But they have a government here at home that is ready and willing to act.” He reiterated the Bank of England’s order to keep inflation “low and stable”. The central bank is aiming for an annual interest rate of 2 percent.
The Budget Responsibility Office, which provides independent economic and fiscal forecasts for the government, said on Wednesday that supply bottlenecks in Britain were “exacerbated by changes in migration and trade regimes after Brexit”. In the coming quarters, labor shortages, higher energy prices and supply chain blockages will slow economic growth and push inflation up, possibly to the highest level in three decades, the agency said.
Still, it raised its forecasts for economic growth and lowered its forecasts for loans.
A lot of mr. Sunak’s largest policy decisions were announced in the days before his presentation to Parliament, including tens of billions of pounds in spending on the National Health Service and public transport, and a nearly 7 percent increase in the minimum wage to £9.50 ($13.05). Other expenses include plans to build houses on brownfield sites, and more money for skills qualifications for young people and adults.
Among the announcements made on Wednesday were tax cuts for research and development spending; a 50 percent discount on business rates, a form of property tax, for shops and catering establishments; a revamped tax regime for alcoholic beverages leading to cheaper draft beer and sparkling wine; tax relief for museums and theaters; and a £1.4 billion investment fund.
Mr. Sunak also announced the outcome of the expenditure review, which sets out the government’s spending priorities for the various departments for the next three years. It was postponed last year due to the pandemic.
Mr Sunak is also trying his own instincts to exercise fiscal prudence and withdraw loans after it reaches wartime levels, against the wishes of Prime Minister Boris Johnson, who has stated Britain is on track to become a highly paid, high productivity economy, and that is willing to spend money to achieve that goal and ‘level up’ the country that has suffered from long-standing regional inequalities.
“Last year the state grew to more than half of the total economy,” said Mr Sunak. “Taxes are rising to the highest level as a percentage of GDP since the 1950s. I don’t like it, but I can’t apologize for it.” He said this had to be done because of the magnitude of the crisis caused by the pandemic.
“But now we have a choice,” he added. “Do we want to live in a country where the answer to every question is, ‘What is the government going to do about it?'”
But for now, Mr Johnson’s spending instincts have persisted. Government department spending will increase by nearly 4 percent per year by the end of 2024. “Every department will see a real increase in total spending,” said Mr. Sunak.