Sunak, Hunt say ‘inevitable’ all Britons will pay more tax

LONDON – British Prime Minister Rishi Sunak’s government said it is inevitable that all Britons, especially the richest, will have to pay more tax to restore stability to public finances.

Mr Sunak met Chancellor of the Exchequer Jeremy Hunt on Monday to discuss tax and spending plans ahead of

an economic statement planned for Nov 17.

They discussed the “eye-watering” gap in Britain’s public finances, and agreed that “tough decisions” are needed on tax rises and spending, according to a Treasury read-out.

“They agreed on the principle that those with the broadest shoulders should be asked to bear the greatest burden,” the Treasury said.

“However, given the enormity of the challenge, it is inevitable that everybody would need to contribute more in tax in the years ahead.”

The measures are necessary to bring calm to financial markets that dumped British government bonds and the pound after

Ms Liz Truss’ tumultuous 44 days as prime minister. 

Two leading research groups on Tuesday said Mr Sunak and Mr Hunt cannot rely on spending cuts when they present their autumn statement. The government is having to bear down on the deficit while the economy teeters on the

brink of recession and inflation lingers at a 40-year-high.

Think-tank Resolution Foundation said Mr Sunak needs to find £40 billion (S$65 billion) of savings to “re-establish economic credibility”. It says spending cuts of that scale are not plausible because high inflation is already squeezing the budgets of government departments.

“This reality means that the autumn statement is likely to involve tax rises, not just spending cuts,” said Mr James Smith, research director at Resolution.

Investors took fright after Ms Truss’s programme indicated that Treasury borrowing would spiral, and have since returned calm to markets after many of the policies were reversed.

Proposing a major economic shift in a separate paper, the Institute for Public Policy Research (IPPR) called for £40 billion of tax increases aimed largely at the rich, saying that would help reduce inflationary pressures.

Targeted levies, such as reversing Ms Truss’ £15 billion cut to national insurance contributions and higher capital gain tax, would slow consumer price growth and prevent the Bank of England having to make big rate hikes. That would protect growth and spare the country a recessionary squeeze, IPPR argued.

A market backlash against the Truss government for £45 billion of deficit-funded tax cuts has left Mr Sunak and Mr Hunt with little option but to stabilise public finances before they contemplate programmes that would cushion consumers and businesses from the downturn.

They are also contending with higher government borrowing costs and weak growth.

Resolution expects independent watchdog Office for Budget Responsibility to forecast a recession in 2023 and for half a million people to lose their jobs. Resolution said weaker growth will raise borrowing by around £20 billion a year by 2026 to 2027.

Higher global rates have added £10 billion to government borrowing costs, and a lingering penalty rate which markets are imposing on Britain for the loss of credibility under Ms Truss, has added another £10 billion, the think-tank added.

To get debt falling by 2026 to 2027 and leave headroom for unforeseen shocks, Mr Hunt will have to find roughly £40 billion of savings. He could cut public investment, but that would be “anti-growth”, Resolution said.

Squeezing public services further would not be credible, and scrapping inflation-indexed pension and welfare increases would hurt the living standards of low-income families.

Alternatively, the government should “go full circle on mini-budget U-turns by reinstating Mr Sunak’s Health and Social Care Levy”, Resolution said, adding that would rase about £15 billion by 2026 to 2027. BLOOMBERG