Rishi Sunak’s austerity plan: painful and challenging

What is the new UK government looking for with its economic policies?

What do conservatives think about Rishi Sunak’s austerity plan?

What is the reason for the budget plans of the new UK government?

What criticisms have been made of the tax plan of the British Conservatives?

What are the consequences of Rishi Sunak’s austerity plan?

The UK government has put strict austerity plans on the agenda to deal with the ever-increasing inflation, which, according to the media of this country, will bring hard times to the British. Rishi Sunak’s austerity plan has many opponents.

Rishi Sunak’s government seeks financial stability

The new UK government has unveiled Rishi Sunak‘s mathematical plan. New British Prime Minister Rishi Sunak’s government is trying to bring further stability to UK’s financial markets with a sharp increase in tax revenue and plans to cut public spending sharply. In this way, he wants to draw a line on the severe crisis created eight weeks ago by Sunak’s predecessor Liz Truss.

Painful economic austerity

Rishi Sunak’s austerity plan will be torturous. Even within the Conservative Party, the financial plan announced by Chancellor of the Exchequer Jeremy Hunt a few days ago has been described as heralding a new era of painful austerity on the island. British Chancellor Jeremy Hunt also admitted that we have a tough road ahead. He said that you have to face the storm.

The reason for the budget plans of the new government

Rishi Sunak’s austerity plan has economic justifications. The cause of the new government’s budget plans is the recession that the UK has just entered, which, according to estimates by the Financial Conduct Authority, is likely to last until 2024. The unemployment rate is expected to increase to half a million in the second half of 2023. However, the body predicts an unprecedented seven per cent loss in disposable income for Britons.

Declining living standards in the UK

This will destroy the process of improving living standards on this island during the last eight years in an instant. Paul Johnson, head of the UK’s prestigious Institute for Financial Studies (IFS), described the matter as almost astonishing. British Chancellor of the Exchequer Jeremy Hunt sees his job as filling a £55 billion ($66 billion) black hole in the public finances, which Downing Street blames partly on the Covid-19 pandemic and partly on the war in Ukraine. About half of the amount needed to fill this hole must come from tax revenue. Given the double-digit inflation, simply earmarking tax-free grants over several years would gradually bring billions of dollars to the state coffers.

Criticism of the Conservative tax plan

Rishi Sunak’s austerity plan has many critics. After months of hesitation, the British Conservatives also approved a temporary special tax on big energy companies, which should also include renewable energy producers. This has been criticized especially by politicians of the Green Party. The fact that electric cars will soon no longer be tax-free also caused discontent. On the other hand, opponents of nuclear power criticized the government’s decision to stick with the new construction of the Sizewell C nuclear power plant.

Budget cuts for London offices

Rishi Sunak’s austerity plan will reduce the budget of government departments. Meanwhile, most offices in London are facing budget cuts. A reduction in public spending is intended to cover the other half of the budget deficit. UK Chancellor of the Exchequer Hunt has assured that extra funding is available for schools and health care. However, many clinic heads and managers complain of significant financial difficulties and wonder whether these measures will be enough to meet demand.

Opposition criticism of Jeremy Hunt

Rishi Sunak’s austerity plan has raised the voice of critics of the government. The opposition accuses the UK government of leading the country into a deadly downward spiral. The opposition accuses Hunt of taking the country straight into a new phase of austerity. Labour’s shadow chancellor Rachel Reeves said the government condemned its citizens to years of further deprivation and even greater poverty amid skyrocketing living costs. Instead of fostering new growth, Hunt’s prescriptions will only deepen the recession that could last until 2024.

Increase taxes and decrease costs

The UK government has announced the most significant tax hikes and spending cuts in a decade. Jeremy Hunt said in London that the country’s economy was in recession when he released his austerity budget in Parliament. Tax increases and spending cuts are expected to save £55bn (€65bn) over the next five years. Hunt said the painful measures were necessary to ensure financial stability after the recent turmoil. In this way, the UK has become the first major Western economy to drastically reduce its spending in the wake of the Covid-19 pandemic and current energy subsidies.

Cut off energy subsidies for households

Rishi Sunak’s austerity plan has many consequences. Hunt also announced he would raise taxes by locking in the thresholds for higher tax rates, pushing thousands of people into the top tax bracket as wages rise. The government will also end energy subsidies for households next spring. It also increases the tax on the profits of energy companies. When presenting this plan to the British Parliament, Hunt said: “I want to make sure that this recession, if we are in one, is as short and shallow as possible.” He added: “So that will be reflected in my decisions.”

The gloomy outlook for the UK economy

Rishi Sunak’s austerity plan is in a situation where the forecasts for the UK economy are pessimistic. In his speech, Hunt confirmed the bleak outlook for the British economy, which has plunged into recession. According to him, the inflation rate, which is currently 11.1%, will not decrease until the middle of next year at the latest, unemployment will increase in the coming months, and economic growth is not predicted again until 2024. According to the ONS, the national debt was 99.6% in the middle of this year, and the trend is increasing.

Sunak seeks to resolve tensions with the EU.

Sunak also wants to build more confidence by de-escalating the dispute with the EU over Northern Ireland. He announced the early resolution of this issue in the House of Commons. He said in the House of Commons in London that he had a very constructive exchange of views with Ursula von der Leyen, the President of the European Commission and the heads of the European governments. The protocol is part of the Brexit deal concluded at the end of 2019, which aims to ensure that no border controls are necessary between Northern Ireland and the Republic of Ireland, a member of the EU, despite the UK leaving the EU. This action prevents sections of the predominantly Catholic supporters of the union with Ireland from taking up arms again. 

A sharp increase in the price of food and non-alcoholic beverages

Food and soft drink prices in the UK rose the fastest since October 1977. In this way, the high cost of food and energy has pushed UK inflation to its highest level in the last 41 years. According to the ONS, consumer prices were 11.1% higher in October than in the previous year. This is the highest figure since October 1981. The UK inflation jump is mainly due to higher energy prices, which have increased for most households despite the UK government capping energy prices from October 1.

The sharp increase in energy prices in the UK

Electricity prices rose 65.7 percent year-on-year after rising 54 percent in September. Gas prices increased by 128.9% after 95.7% in the previous month. The Bank of England recently braced itself for high inflation with the most significant interest rate hike in decades, raising the key monetary policy rate by 0.75 basis points to 3.0%. This was the sharpest increase since 1989. The Bank of England has been targeting an inflation rate of 2% but has long missed that target.

The moves represent a sharp shift in UK’s economic policy after former British Prime Minister Liz Truss spooked financial markets by promising to boost growth through tax cuts funded by more borrowing. His successor, Rishi Sunak, is now steering economic policy in the opposite direction, trying to convince investors that the UK is serious about tackling the rising national debt. He aims to regain market confidence without damaging the economy, which is widely expected to enter a recession.