New British finance minister Zahawi targets inflation, 'sound finances'

Britain's Chancellor of the Exchequer Nadhim Zahawi visits an Asda supermarket in London, on July 14, 2022. PHOTO: REUTERS

LONDON (REUTERS) - Britain's government must focus on sound public finances and avoid further fuelling inflation by pumping up demand, new finance minister Nadhim Zahawi is due to say in his first major speech on Tuesday (July 19).

Mr Zahawi will address the City of London's annual Mansion House dinner, where he is set to confirm a post-Brexit reworking of financial regulation inherited from the European Union, including Solvency II insurance rules.

However, tackling inflation is a top priority alongside boosting longer-term growth, according to speech extracts provided ahead of the event.

"That means delivering sound public finances to avoid pushing up demand still further, providing help for households as they deal with the worst price rises in over a generation," he says in his speech.

"The country should feel confident that we can, and we will, get inflation back under control," the speech added.

Consumer price inflation hit a 40-year high of 9.1 per cent in May and the Bank of England forecasts it will exceed 11 per cent in October, when regulated household energy prices are due to rise by 40 per cent.

Mr Zahawi's message on public finances contrasts with that from some of the contenders in the Conservative leadership contest to succeed Prime Minister Boris Johnson.

Foreign Secretary Liz Truss has said she wants to reverse more than £30 billion (S$50 billion) of tax rises announced by rival leadership contender Rishi Sunak, whose resignation as finance minister two weeks ago helped trigger Mr Johnson's downfall.

Mr Zahawi made his own brief bid to become prime minister last week, but failed to get enough support from lawmakers to progress, despite hinting at his own support for tax cuts.

Tuesday's speech will also contain more about government plans to replace "hundreds" of pieces of EU financial regulation with home-grown equivalents, including changes to Solvency II.

This would ensure "UK insurers have more flexibility to invest in long-term assets like infrastructure" and increase" the competitiveness of our capital markets".

However, the Bank of England - whose governor Andrew Bailey will also speak at the Mansion House dinner - has warned that reducing the amount of capital which insurers need to hold is no "free lunch" and could increase risks to policyholders.

British Prime Minister Johnson's government on Monday won a confidence vote it had called in itself, with members of the governing Conservative Party voting in support of ministers to avoid triggering a national election.

The opposition Labour Party has called on Mr Johnson, who has said he will step down, to be replaced immediately by a caretaker leader until his successor is elected by the Conservative Party in early September.

Labour had sought to hold a confidence vote in both the government and Mr Johnson in order to try to force him out sooner, but the government objected saying it was unnecessary because the prime minister has already said he will go.

The Conservatives instead proposed a confidence motion in the government. The government won the vote by 349 to 238.

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