UK faces £35bn shortfall as it delays tax and spending plans

Jeremy Hunt is seeking to fill a fiscal shortfall of £35bn (€40.4bn) when he sets out the government’s tax and spending plans next month.

UK chancellor of the exchequer Jeremy Hunt is seeking to fill a fiscal shortfall of £35bn (€40.4bn) when he sets out the government’s tax and spending plans next month, officials familiar with the matter said.

The British government has drawn up a menu of 104 options to cut spending to get public finances back onto a sustainable track, according to the officials, who cited UK Treasury and Office for Budget Responsibility data from this week.

Asked about the £35bn figure at a regular briefing, Prime Minister Rishi Sunak’s spokesman called it “speculative”. 

Without pushing back against the details, the Treasury said in a statement that “our number one priority is economic stability and restoring confidence that the United Kingdom is a country that pays its way”.  

Both Mr Hunt and Mr Sunak — who took office on Tuesday — delayed a planned economic statement to November 17 from October 31 to give them time to make what the Mr Sunak described as the “right decisions” to manage the British economy. 

The government also upgraded the status of the programme from a “medium-term fiscal plan” to an autumn statement — a form of interim mini budget.

The delay means the Bank of England will now make its next interest rates decision on November 3 without knowing the government’s plans in full. Mr Hunt told broadcasters he had discussed the delay with the central bank.

There’s a potential advantage for Mr Hunt in delaying, because it gives the fiscal watchdog a chance to incorporate the improvement in the gilt market when it assesses the viability of his economic plan — as long as the picture doesn’t deteriorate dramatically again in the meantime.

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It will “give us the best chance of giving people security over their mortgages, over their jobs, over the cost-of-living concerns everyone has”, Mr Hunt said. 

Markets were relatively unmoved by the announcement, with the yield on 30-year gilts rising 10 basis points to 3.77% and the pound holding gains to trade 0.8% stronger at $1.156.

Meanwhile Mr Sunak told his new cabinet that Mr Hunt’s statement will set out how the government will get debt falling in the medium term, according to a readout of the meeting.

“Spending does need to be paid for,” Mr Sunak later told the House of Commons. 

Nevertheless, the UK Treasury said that “protecting public services and the most vulnerable will be prioritised”. The plan for a fiscal statement was first announced by Mr Hunt’s predecessor, Kwasi Kwarteng, as he tried to calm markets that were roiled by the massive package of unfunded tax cuts he announced on September 23.

Mr Kwarteng had planned it initially for late November, but brought it forward to October 31 as Liz Truss’s government came under fierce pressure to act as market instability drove up the cost of mortgages. 

In the end, Ms Truss fired Mr Kwarteng and replaced him with Mr Hunt, who ripped up most of the tax cuts and warned that he would have to cut spending to get public finances back on track. 

- Bloomberg