Britain unveils its latest budget Wednesday, looking to fix the public finances after emergency pandemic support sent debt rocketing.
While attempting to bring down the deficit, Prime Minister Boris Johnson’s government is set also to confirm multi-billion-pound funding projects aimed at driving long-term recovery and reducing pressure on the state-run health service.
Finance minister Rishi Sunak delivers his tax and spending plans in parliament from around 1130 GMT, grappling not just with the pandemic but with problems associated with Brexit.
“Today’s budget begins the work of preparing for a new economy post-Covid,” he is set to say, according to excerpts of his speech released by the finance ministry.
“An economy of higher wages, higher skills, and rising productivity. Of strong public services, vibrant communities and safer streets. An economy fit for a new age of optimism,” Sunak will add.
On the eve of the budget, the government revealed plans to raise minimum wage rates and end a freeze on pay rises for public-sector workers.
But the boost to salaries is likely to be offset by rising inflation, which is denting Britons’ spending power, especially as energy bills soar with the UK reopen for business following lockdowns.
A further hit has come from the government returning welfare benefit payments to pre-pandemic levels, after a temporary hike to help families through the virus outbreak.
British unemployment meanwhile risks soaring in the coming months after the government ended its costly jobs furlough scheme, which paid the bulk of wages for millions of private-sector workers during the pandemic.
Government borrowing rocketed to around £320 billion ($442 billion, 381 billion euros) in the financial year to March, driven higher by costly Covid support.
That was equivalent to 14.9 percent of gross domestic product, the highest UK level since the end of World War II.
Sunak will have drawn comfort from recent news that state borrowing dropped by more than expected in September, aided by falling Covid-related expenditure and rising tax receipts as the economy slowly recovers.
At the same time, the debt outlook remains clouded by the prospect of higher interest payments.
World Cup boosts
While reducing the deficit is a priority for Sunak, the chancellor wants to drive recovery with the help of large spending projects as well.
The Treasury last week announced investment totalling almost £7.0 billion on transport outside London.
The government will also pump an extra £6.0 billion into its National Health Service, which is struggling to treat all patients as virus cases surge again.
Sport is set for some largesse, with British bids to stage the 2025 women’s rugby World Cup and the 2026 Tour de France Grand Depart in line to share £30 million of funding.
A further £11 million is due for the UK-Ireland bid to host the 2030 men’s football World Cup.
Media reports meanwhile suggest Sunak could cut tax levied on banks’ profits, boosting London’s “City” financial district that has been slammed by Brexit fallout.
He may also include more environmentally friendly measures ahead of the COP26 UN climate summit starting next week in Glasgow.
At his last budget in March, Sunak unveiled plans to ramp up tax on company profits to 25 percent from 19, starting in 2023.
And the Conservative government recently broke an election pledge by announcing a tax hike to fix a social care crisis.
The government said the increase brought Britain into line with France, Germany and Japan, which have all raised social insurance levies to help care for ageing populations.