Standard & Poor's warns that fiscal space in the UK is “limited” following the announced tax cuts

Madrid, November 24 (European Press) –

Ratings agency S&P Global Ratings warned on Friday that it expects the UK's fiscal space to remain “limited” despite the tax cuts announced two days ago during its autumn 2023 statement.

Thus, the report indicates that although the government is committed to limiting the increase in public spending, this year's fiscal surpluses will be used to reduce taxes.

Standard & Poor's noted that one of the key factors affecting the UK's long-term sovereign credit rating of 'AA' is the 'constrained budgetary situation', characterized by high budget deficits and the level of general government net debt.

According to the Office for Budget Responsibility (OBR), higher inflation will boost public revenues in coming years by influencing the setting of income tax thresholds. However, the government's interest bill will also be higher, as will social spending, although Rishi Sunak's government has committed to limiting the growth of spending above income.

This situation is supposed to generate a “surprise” situation estimated by the Office of Budget Control at about 27 billion pounds (31,087 million euros) annually from now until 2027, or 1% of British GDP, but Standard & Poor’s considered it “uncertain.” This amount will be fully realized.

Moreover, Standard & Poor's laments that these extraordinary revenues are not being used to reduce ballooning public debt (96% of GDP), which exceeds early 1990s levels by about 70 points. Instead, the government decided “once again” to spend “extraordinary revenues on tax cuts before the elections,” which will make the task of controlling the deficit a “challenge” for the future.

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As for growth, Standard & Poor's does not expect a “significant acceleration” in GDP in the near term, with the economy advancing by just 0.4% in both 2023 and 2024.

“Budget outcomes could be better if growth exceeds these expectations, which remains possible given the past resilience of domestic demand to multiple pressures, such as inflation and rising interest rates,” S&P explained.

Battery measurements

British Chancellor Jeremy Hunt, who is responsible for the Treasury, informed Parliament on Wednesday of a set of 110 financial and other stimulus measures with an annual impact of 20 thousand million pounds (23.027 million euros).

The finance minister celebrated that they all represent “the biggest corporate tax cut in modern history and the biggest ever tax cut for workers”.

Thus, the tax system applied to self-employed workers will be simplified and social contributions for 27 million workers in the public and private sectors will be reduced, with a reduction to 10% from 12% of the National Insurance on incomes that range between 12,570 and 50,270 pounds (14,473 and 57,879 euros). Which means saving £450 on an average salary of £35,000 (€40,298).

On the other hand, the 75% discount on commercial rates for hospitality and leisure retailers will be extended for another year, meaning a tax cut of £4,300 million (€4,951 million). “It's a significant tax cut that recognizes the role of pubs and shops in our communities,” he said.

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