UK must raise taxes and cut spending, Hunt says ahead of budget

Chancellor says he aims to restore economic credibility after market chaos sparked by former prime minister Liz Truss

British prime minister Rishi Sunak alongside his finance minister Jeremy Hunt. 'We're all going to be paying a bit more tax, I'm afraid,' Hunt said.

UK finance minister Jeremy Hunt said he will set out tax rises and spending cuts this week to show Britain can fix its public finances and restore its economic credibility after financial market chaos sparked by former prime minister Liz Truss.

But he said poorer households should be spared much of the pain and cuts to public services would be balanced.

Speaking before announcing a budget plan on Thursday, Hunt said he did not want to aggravate an expected recession but he had to show he could lower a budget deficit which has soared after the Covid-19 pandemic and Russia’s invasion of Ukraine.

“You don’t want to do things that make any recession that you may be in worse,” Hunt told Sky News yesterday.

“But on the other hand, if you do nothing, if you don’t show that we’re going to bring our debt down ... interest rates get higher and you get a recession that’s made worse.”

After a bond market rout triggered by a string of unfunded tax cuts in Truss’s “mini-budget” in September, Hunt and prime minister Rishi Sunak have warned they will take tough decisions at a time when 10% inflation is already squeezing households. He added: 

We’re all going to be paying a bit more tax, I’m afraid.

“We will be asking everyone for sacrifices but ... we need to recognise that there’s only so much you can ask from people on the very lowest incomes.”

The Sunday Times said Hunt planned to tackle a £55bn (€63bn) hole in Britain’s budget by freezing thresholds and allowances on income tax, national insurance, inheritance tax and pensions for a further two years.

He also intends to halve a tax-free allowance for capital gains and lower the threshold for paying the tsop rate of income tax to 125,000 pounds a year from 150,000 pounds, it said. Many lawmakers in his governing Conservatives oppose higher taxes and big increases could revive the tensions in the party.

Asked about spending cuts, Hunt said a strong economy needed good public services and cuts would be made in “balanced way”.

Hunt said he would address problems in the labour market.

Pressed on whether Brexit was the reason Britain has yet to recover its pre-pandemic size, Hunt told the BBC: “I don’t think that’s the biggest issue ... it’s much more to do with other factors in the labour market.”

• Reuters