(Bloomberg) -- Chancellor of the Exchequer Jeremy Hunt is planning a spending freeze after Britain’s next general election, a move he hopes will plug about half of the UK’s £50 billion ($59 billion) fiscal hole.
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Hunt is preparing to cut planned public spending growth to 2% or lower after 2024-25, compared to a previous provisional plan of 3.7% growth, according to a person familiar with his thinking, speaking on condition of anonymity because no final decisions have been made.
Meanwhile he is leaning toward sticking with existing near-term spending plans that will see departmental budgets be 3.3% higher on average between 2021-22 and 2024-25, the person said. The Treasury did not immediately respond to a request for comment.
This approach would help Hunt achieve his aim of stabilizing the UK’s public finances over the medium-term while limiting any immediate damage to public services in the run up to an election, which is expected in Britain in 2024. Hunt is due to announce his full plans Nov. 17.
Pushing back the spending pain may also be advantageous for Hunt because an improvement in the UK’s economic backdrop -- which is currently grim as the Bank of England hikes interest rates and warns of recession -- could mean he doesn’t need to follow through with the plans.
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The political challenge for UK Prime Minister Rishi Sunak and Hunt is enormous on Nov. 17. Their task is to appease financial markets with a package of spending cuts and tax increases that rebuilds Britain’s economic credibility after the disastrous tenure of Liz Truss, while also not overly angering voters or the fractious Conservative Party that will have to vote the measures through Parliament.
Hunt has to tread particularly carefully because the Tories are well behind the main opposition Labour Party in the polls and are about to impose a fiscal tightening on Britons already battling a record squeeze on living standards.
Alongside spending restraint, Hunt is expected to announce revenue-raising measures including an expanded windfall tax on oil and gas firms, higher capital gains tax and various freezes to thresholds and allowances that will effectively raise more tax by stealth for the Treasury.
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