UK Hunt sees ‘difficult decisions ahead’ on tax and spending

(Bloomberg) –

British Chancellor of the Exchequer Jeremy Hunt said there are difficult choices ahead on tax and spending as he seeks to calm financial markets, after weeks of chaos since Prime Minister Liz Truss came to power.

“We have some very difficult decisions ahead of us,” Hunt said Saturday in an interview with Sky News. The thing the people want, the markets want, the country needs right now is stability. No minister can control the markets. But what I can do is show that we can pay taxes and spending plans.”

Hunt replaced Kwasi Quarting in charge of UK money chains on a dramatic Friday in which she sacked the gears of her old ally and made another major turn in her economic strategy in a desperate bid to salvage her premiership.

Desperate bid to save the British Premier League lands Truss in more trouble

While Hunt said he agreed with the primary thrust of Truss’ goal of pursuing growth, he also criticized the prime minister and his predecessor for their “mistakes”, including trying to cut taxes on high-income UK earners – an idea they were forced to abandon after A fierce political response.

The new advisor faces a major challenge to calm the markets. While Truss said scrapping her corporate tax freeze plan would raise £18 billion ($20 billion) a year, Bloomberg Economics estimates that around £24 billion would be needed or increased revenue to get debt back on a sustainable path.

tax warning

“Spending will not go up as much as people want and there will be more efficiencies to be found,” Hunt said. “We will not have the speed of tax cuts we hope for and some taxes will have to be increased: that is the reality of the very difficult situation we are facing.”

While Hunt said all government departments should find “capabilities”, he denied a return to austerity at the level imposed by the Conservative-led coalition government in early 2010.

Brings a rival gear that can stabilize the ship or take over the ship

Hunt was a notable change of tone for Truss and Quarting, who had staked their political reputations on a blanket drive for growth with the largest set of tax cuts in half a century. Truss’ rival for the top job in the Conservative leadership contest, former Chancellor of the Exchequer Rishi Sunak, has squashed the campaign warning that Trussonomics will disrupt the market.

This prediction was proven because Truss and Quarting failed to convince the financial markets that their plan was credible. The September 23 package triggered a sell-off that sent the pound to an all-time low against the dollar and forced the Bank of England to intervene in the credit bond market to prevent the collapse of a key part of the pension industry.

After his leadership bid was cut short, Hunt backed Sunak — and there are echoes of the former chancellor’s argument — that growth policies should wait until public finances are in good shape — in what Hunt said.

‘Error’

“It was a mistake to require tough decisions across the board about taxes and spending to lower the tax rate for the richest,” Hunt told Sky. “It was a mistake not to think and make these predictions without giving people the confidence of the Office of Budget Responsibility by saying that the sums are accumulating.”

Friday’s dual Truss maneuver to fire Kwarteng and say corporate tax will now rise to 25% from 19% next year as previously planned by her predecessor, Boris Johnson, failed to stabilize the ship, as the pound and gold plummeted after it was wire.

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“We don’t expect financial concerns to abate,” Citigroup economists Benjamin Nabarro and Jimmy Searle said in a clients’ report. Instead, we believe that more market instability is likely ahead. Truss may struggle to stay in office, but more broadly, the UK now faces a period of heightened market uncertainty without a clear policy strategy in place.”

That leaves Hunt with a job to do – especially since the central bank’s bond market intervention ended on Friday. The new chancellor has just over two weeks to come up with a package of measures that will convince markets that he has control of the UK’s finances.

On October 31, he is scheduled to present a medium-term fiscal strategy to show how the government will begin to reduce the national debt as a proportion of production, and at the same time, the OBR, the government’s independent financial regulator, will produce a set of economic forecasts.

(Updates with more comments from Hunt, context, starting in 5th paragraph)

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