#Item #British #Prime #Ministers #agenda #inflationary #crisis
Prime Minister Boris Johnson’s government is on suspension, including on economic policy, as a cost-of-living crisis deepens for millions of Britons.
But tax cuts are inevitable under a new leader to address the financial woes that are rapidly spreading in the world’s fifth-largest economy, analysts say.
Low taxes are an article of faith for the Conservative base who will be electing Johnson’s successor in the coming months after he announced his resignation as party leader on Thursday.
“The cost of living crisis is at the center of voters’ minds,” Hargreaves Lansdown economist Sarah Coles told AFP.
“A new leader must effectively support those who face the greatest challenges or risk being punished at the ballot box,” she said.
Johnson expressed his defiance as late as Wednesday night when advisers said he was planning a tax cut declaration with his new finance minister, Nadhim Zahawi, next week.
The resignation canceled this plan.
Johnson’s reshuffled cabinet, appointed on Thursday, agreed that “major financial decisions should be left to the next prime minister,” Downing Street said.
Zahawi’s predecessor, Rishi Sunak, resigned Tuesday along with Johnson’s health secretary, sparking an exodus of other ministers weary of his premiership’s many scandals.
Sunak had sought to prioritize balancing the books after spending billions on Britain’s costly Covid support measures.
He had increased taxes on corporate profits and paid employment to pay the pandemic bill and fund welfare for the elderly.
But the Brits, like others in many countries, are grappling with rising consumer prices, fueled in part by the aftermath of Russia’s war in Ukraine, which has destabilized energy markets.
UK inflation is at a 40-year high, also being driven by increased food prices, and is expected to hit double digits soon as the average domestic energy bill is expected to top £3,000 ($3,600) a year.
– heat or eat –
Many Britons say they will have to choose between heating or eating out this winter.
The nation is also facing nationwide strikes – particularly in the transport sector – as the purchasing power of wages is rapidly eroding.
The next Conservative Prime Minister will therefore face the challenge of surviving beyond the next general election when that Parliament’s term ends at the end of 2024.
But first they must win the Tory base.
“Johnson’s successor will likely need to show some intent to cut taxes to be elected by Conservative Party members,” agreed Kieran Tompkins, an analyst at Capital Economics.
Adding to the gloomy mood, the Bank of England is warning that the economic outlook at home and abroad has deteriorated due to high inflation.
The BoE has hiked interest rates five times since December to fight inflation – but that has also increased the repayment of loans such as mortgages and has put further strain on household budgets.
Some economists warn that tax cuts, while boosting consumer demand and economic growth, could stoke inflationary price pressures.
“Tax cuts are a staple of Conservative politics and can win votes, although caution might be warranted on the occasion,” warned AJ Bell investment director Russ Mold.
British businesses are also grappling with the aftermath of Britain’s exit from the European Union, as well as a global supply chain crisis and staff shortages as demand picks up in the wake of the pandemic.
“Tax cuts won’t help them and could make them worse, fueling inflation and forcing the Bank of England to hike interest rates faster and further,” Mold said.
The government’s regulator of budget spending, the Office for Budget Responsibility, this week cast doubt on the wisdom of a drastic tax cut.
The OBR warned that the UK’s public finances were “on an unsustainable path in the long term”.
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