Sunak took advantage of Wednesday’s semi-annual budget presentation to announce Billion-pound investments to help Prime Minister Boris Johnson deliver on his promises to “level” society and ease cost-of-living pressure on low-income households.
But the plan comes at a cost: British budget forecasts indicate that State tax collection will be the highest since the 1950s due to tax increases announced in March and September.
Public spending now represents the largest percentage of economic output since the late 1970s.
In a speech to Parliament, Sunak welcomed the improvement in economic growth forecasts and said that he wanted to cut taxes before the next elections, scheduled for 2024.
The Office of Budget Responsibility (OBR) noted that the economy was likely to grow 6.5% in 2021, much faster than the 4% forecast in March, when Britain was still in lockdown from the coronavirus.
“Today’s budget does not put an end to COVID. We have difficult months ahead of us.”Sunak indicated. “But today’s budget it does start the work of preparing for a new post-COVID economy. “
The further growth forecast for 2021 means that the economy would regain its pre-pandemic size later this year, and not in the second quarter of 2022 as forecast in March, but this was still slower than in other countries.
The long-term damage to the economy would also be less, with a permanent loss of 2% of production, compared to the 3% previously estimated, the OBR said.
Sunak – which ran the biggest budget deficit in Britain’s history in peacetime to fight the coronavirus – will now be able to borrow less than previously anticipated.
The OBR expected that the deficit for the fiscal year until the end of March would be equivalent to 7.9% of economic production, which represents a decrease compared to its previous forecast of 10.3% and almost half of the historical deficit for the year last.
Sunak highlighted that all areas of government would get a real increase in spending, and he promised the largest increase in core funding to local governments in a decade.
Sunak recognized the risks posed by rising inflation, which in large part he attributed to the problems of the world economy.
The OBR predicted inflation would hit nearly 5% next year, and argued that post-Brexit trade and migration rules had exacerbated supply bottlenecks in Britain.
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