After the fiscal hara-kiri course of short-term Prime Minister Truss, her successor Sunak radically changed course. Instead of tax cuts, his finance minister promises rising taxes and cuts in spending. Sunak is also sending conciliatory signals to Brussels.
The UK government has announced the biggest tax hikes and spending cuts in a decade. The country's economy is in recession, said Finance Minister Jeremy Hunt in London when his austerity budget was published in Parliament. Tax increases and spending cuts are expected to save £55 billion (€65 billion) over the next five years. The painful measures are necessary to ensure financial stability after the recent turmoil, Hunt said. The UK has become the first major western economy to drastically curtail spending in the wake of the pandemic and recent energy subsidies.
Among other things, Hunt announced he would raise taxes by freezing thresholds for higher tax rates, pushing thousands of people into the top tax bracket as wage increases and inflation raise their salaries. The government will also cut an energy subsidy for households next spring. It also increases the profit tax on profits from energy companies. "Because of our plans, the recession is shallower and inflation is lower," Hunt said when presenting the plan to the UK Parliament. "But that means we have to make difficult decisions," he added.
The measures mark a sharp shift in UK economic policy after former UK Prime Minister Liz Truss spooked financial markets by promising to boost growth through tax cuts that would be funded by higher borrowing. Her successor, Rishi Sunak, is now steering economic policy in the opposite direction, trying to convince investors that the UK is serious about finally getting to grips with the rising national debt. His job will be to regain market confidence without causing major damage to the economy, which is widely expected to slide into recession.
Sunak could create further trust by defusing the dispute with the EU over Northern Ireland. He announced an early solution to this issue in the House of Commons. He had a very constructive exchange with EU Commission President Ursula von der Leyen and with European heads of government, said the conservative politician in the House of Commons in London.
The protocol is part of the Brexit treaty concluded at the end of 2019 and is intended to ensure that despite the British exit from the EU between Northern Ireland and the EU member Republic of Ireland, no border controls will be necessary. This is to prevent parts of the mainly Catholic supporters of a union with Ireland from taking up arms again. Instead, however, a goods border has emerged between Northern Ireland and the rest of the UK, which has been opposed by many of the mostly Protestant supporters of union with Britain.
