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CHANCELLOR of the Exchequer Jeremy Hunt administered the smallest dose of fiscal medicine he could in Thursday’s Autumn Statement.
But the unpalatable truth is that there’s a lot more to come as he tries to nurse the ailing UK economy through a recession.
To fill the £55bil (US$65bil or RM296bil) gap in government finances, equivalent to 2% of gross domestic product (GDP), over the next five years, Hunt split the pain equally between spending restraint and tax hikes.
He was prudent enough to raise an additional £9bil (RM48.7bil) of revenue as a buffer against any further deterioration in the nation’s finances.
A sagging pound and moderately higher gilt yields ensued, but both were broadly in line with global markets.
Thursday’s package isn’t likely to alter the Bank of England’s (BoE) approach to interest rates.
The chancellor emphasised his priorities are growth, public services and stability, with the latter getting most of the attention in this budget.
Hunt’s phlegmatic, almost professorial delivery underscored his appeal as offering a safe pair of hands.
While much of the repair work had already been done in repealing the tax cuts of the previous Prime Minister Liz Truss, the government was taking no risks, making this the most well-leaked budget in modern memory.,
And yet for all the talk of stability, there was little to sugarcoat the medicine.
Inflation is hitting its highest rate in 40 years and households are facing losses in disposable income of more than 7% and the largest fall in living standards since Office for National Statistics records began in 1956. Incomes aren’t expected to recover until 2027.
Gone is the talk of making Britain a low-tax country, although most of the tax increases come from freezing thresholds so that more tax-payers are dragged into the net rather than hiking marginal rates.
The government won’t break a sweat financing this extra burden for now.
Due to a lower government net cash need, according to Office for Budgetary Responsibility (OBR) rules, there will be £24bil (RM130bil) less gilts sold out to March than had been planned.
This means five fewer auctions and one less syndicated sale.
Next year is a different story as the OBR expects the overall borrowing need will be £305bil (RM1.7 trillion).
That implies gross gilt sales of at least £250bil (RM1.4 trillion) for 2023-2024. While that might not seem a huge increase on the £170bil (RM921bil) raised this year, in net terms it will be huge – the equivalent of the previous seven years of total net supply.
Bear in mind the BoE will also be selling £40bil (RM217bil) in gilts each year, and probably the £19bil (RM103bil) of emergency purchases it was forced into six weeks ago when Truss’s tax-cutting spree send the bond market into a tailspin.,