Rishi Sunak, the Chancellor of the Exchequer whose political star rose as fast as the UK economy collapsed during the Covid-19 pandemic, will try next week what few of his predecessors have done or even tried: the start an austerity program in the depths of a recession, even though the UK government is still backing the economy with massive spending, while tax revenues decline and the budget deficit and national debt rise.
Sunak can expect to take advantage of both worlds by announcing tighter spending as it seeks a way back to more balanced budgets in a few years: reassure the markets that he is indeed a conservative chancellor who is The public sector is aware He’s doing what the UK economy wants it to do and continues to help the economy out of its present and future funk – since Brexit on January 1, a troubled economy will soon take another blow.
The risk, of course, is that he could instead experience the worst of both worlds: the mere announcement of future spending cuts would put a dampening effect on activity before the economy has time to recover. This in turn would limit the impact of the measures he announced on the deficit by further depressing tax revenues.
Sunak will be his “Expense overviewThis is a regular exercise that will be limited to one fiscal year instead of the usual three or four years this year, as numerous uncertainties still weigh on the economic outlook. In particular, according to government leaks that have inspired several UK newspapers in the past few days, he will announce a freeze on wages for public sector workers, to show that the government will do its part to manage the budgetary situation.
Sunak is called Demonstration tool The latest figures from the Office of National Statistics show that the budget deficit is around 10% of GDP and debt is around 105% of GDP. That’s an 85% increase in 2019, and with commentators tending to warn every month since the pandemic began, national debt is at an all-time high.
You could almost forget that while its economy is one of the worst hit by the virus in Europe, the UK is not an outlier: the eurozone’s national debt will rise from 86% last year to 102% in 2020 at the European Commission recent forecasts. And it already equates to around 115% of GDP in France – an economy with a similar structure to the UK – and 135% in Spain, 16% in Italy.
This doesn’t even take into account the fact that the UK has a more enviable debtor situation than other comparable economies. The maturity of its debts is around 15 years – twice as much as the European average – and, as elsewhere, the interest rates are negative in real terms and amount to 0.3% for 10-year gold, while inflation this year is 0.8%. is forecast.
In his last report With regard to the UK, the International Monetary Fund encouraged the government to start planning a return to normal, but warned that high national debt should not be the main concern for now and that the first priority should be to ensure the recovery is in full In progress.
Sunak himself held a similar tone over the summer, stating that the time for tax hikes had not yet come. He then had his priorities right. He has since had to double up his costly plans to subsidize the wages of workers affected by the pandemic or to help businesses through the storm. This does not mean that the return to balance should begin immediately.
In this phase there is a double risk that future austerity measures will also be too explicit. Announcing tax increases will push taxpayers to save, not spend, and worsen the slump. And the warning of public spending cuts will lead future victims – officials say if their wage freeze is confirmed – to do the same. That’s before Sunak even took into account the £ 16.5 billion its boss, Prime Minister Boris Johnson, added to the defense budget, and the few billion Britain needs to spend preparing the country for a life outside the European single market.