British Finance Minister Rachel Reeves announced billions of pounds for discounts in the middle of disturbing times for the United Kingdom on Wednesday for the United Kingdom
Addressing the legislators in Parliament, Reeves has unveiled measures intended to close a budget deficit caused by an increase in loan costs since its first budgetary plan, published last fall.
“The responsible choice is to reduce our debt and borrowing levels in the coming years so that we can spend more on workers’ priorities,” said Reeves.
Reeves said the well-being reductions already presented last week should save 4.8 billion pounds sterling in the social protection budget and increases measures to put people back to work. It also established measures to repair tax evasion which would increase the income of the treasury.
Warning that “we live in an uncertain world”, Reeves has unveiled a “significant step” to the expenditure of 2.5% of the GDP in defense with reductions of aid abroad helping to finance the boost.
The Minister of Finance had already promised to stick to his self-imposed “tax rules” in the “fall budget” last October: to ensure that daily expenses are respected by tax revenue and that public debt decreases in part of economic production by 2029-30. On Wednesday, she reiterated her position according to which these rules were “non -negotiable”.
The Minister of Finance of the United Kingdom Spring was Delivered alongside the latest economic forecasts of the Office for Budget Responsibility (OBR), the Country Final Country Dog.
The OBR, said Reeves, had lowered the UK’s growth forecasts for 2025 and has half reduced its previous estimate by 2%.
“I am not satisfied with these figures. This is why we, on this side, we are serious to take the necessary measures to develop our economy,” she said, responding to the demotion of OBR growth.
‘A world in mutation’
Since its initial budget was presented last October, Reeves underwent increasing pressure to reduce public spending, further increase taxes or to bend budgetary rules in the midst of an increase in loan costs in the United Kingdom which, according to analysts, have erased the “tax room” that Reeves had in its initial budget.
The United Kingdom also faces the spectrum of a temporary increase in the inflation rate, According to the Bank of Englandas well as economic slowness has continued in recent months.
Reeves should largely refer to the change of economic context since its last budgetary state, with the uncertainty of the trade rates of the American president Donald Trump, considered as inflationists, also posing a headwind for the economy.
The Treasury had already published a press release on Tuesday indicating that Reeves undertook to cause “national security and renewal” in its spring declaration which, according to him, said “to launch economic growth, protect workers and ensure the security of our country”.
British Prime Minister Keir Starmer meets the British chancellor of the chessboard Rachel Reeves, a few days before the announcement on the first budget of the new Labor government, in Downing Street on October 28, 2024 in London, England. Starmer and Reeves meet before the budget on Wednesday.
WPA Pool | Getty Images News | Getty images
Reeves’ declaration should tackle “the erosion of the tax margin via more strict expenditure control,” noted Emily Nicol and Edward on the Daiwa capital markets.
“At the time of the October budgetary announcement, the OBR provided for a current budget surplus during the year 29/30 of around 10 billion pounds sterling, this amount representing the so-called` Marge ” of the government to reach its binding objective of a current balanced budget on this date.
“Economic growth having recently been lower than OBR expectations – and the OBR likely to be talked about about its 2.0% GDP forecasts in Y / Y for 2025 – The surpassing of public loans and the sub -service of tax income compared to the forecasting of OBR could be considered in part because of the cyclic weakness which could be prevailing correctly.”
Economists have however warned that “the increase of approximately 20 to 40 basic points in golden yields on a large part of the curve, because mid -October will be considered by the OBR as structural and will be next to certain other shifts – in the absence of compensating new policies – has probably eroded the height of the government.”
Expenditure cuts
The erosion of the treasury budget height prompted economists and analysts to get a large bank in Reeves announcing billions of pounds of costs on Wednesday.
The government has already reported plans For 5 billion pounds sterling of social expenditure discountsAs well as the intention to reduce the administrative costs of the public service, which implements government policies, by 15% by 2030.
“The Declaration of Spring will see an increase in the loan required in the next two years due mainly to higher interest payments. An updated OBR forecast will require the chancellor to make discounts on back of the back of around 10 billion pounds sterling to keep its previous tax budget room”, the Stratège de Barclays Moyeen Islam and the head of the UK economy meaning Jack meaning in last week’s analysis.
“These savings will most likely be focused on social spending and public sector staff, and delayed until the second half of the Parliament, beyond 2027,” they added.
Rachel Reeves, British Minister of Finance, speaking on the Squawk box of CNBC outside the World Economic Forum in Davos, Switzerland, January 22, 2025.
Gerry Miller | CNBC
Analysts of the Teneo geopolitical consulting company have agreed that if the fall budget last octomne saw 40 billion pounds of sterling of targeted tax increases to finance public services, the next declaration of reeves “should lead to reductions in well-being expenses,” noting that “any increase in additional tax (even limited) should be monitored”.
“A certain relief for employers could also arrive, following the controversial increase in the national insurance contribution in October. On the whole, the declaration will serve to underline the limited budgetary space as the search for growth and productivity continues, in the midst of pressures to improve greater public services and defense expenses,” added Teneo analysts.
A Treasury spokesperson told CNBC on Tuesday that the Treasury “would not comment on speculation on OBR forecasts”.
“The Chancellor was also clear that she would not repeat the budget of October and now focus on the growth of the economy and rooting in public spending thanks to the expenditure exam,” added the spokesman.
Reeves has repeatedly commented on that it would not abandon its tax rules or increase taxes for the moment, although economists expect more samples can arrive later this year.
There was a general dismay in the British affairs community last fall when it increased the tax burden to businesses and employers in order, she said, to connect a hole in public finances and to allow to invest in public services.
British industry leaders have warned that the Treasury tax plans could weigh on investment, jobs and growth.
Reeves defended tax increases as a “unique” and necessary measure to stimulate investment in public services. She said on several occasions that stimulating growth in the United Kingdom is her number one priority and has promised not to withdraw the rules or tax targets that she imposed on her department.
