The United Kingdom was the first to draw. While the United States and the European Union prepare stimulus packages, the British government promises … tax increases. But not right away, only in 2023. Until then, aid will continue to flow, time to turn the page on the epidemic.
By presenting his budget for the year from April 2021 to March 2022, Wednesday March 3, the Chancellor of the Exchequer, Rishi Sunak, had a double message. On the one hand, he gave substantial new aid, extending the bulk of the measures in place for an additional six months, including partial unemployment, until the end of September. On the other, he announced that this generosity would not last. In particular, he plans to increase corporate tax from 19% to 25%. “When the recovery is there, we will have to start repairing our public finances, I want to be honest”Mr. Sunak told the House of Commons.
Unprecedented invoice
The British government has chosen to put the issue of the public deficit at the heart of the political debate now. It must be said that the economic shock of the pandemic was particularly violent in the United Kingdom. Gross domestic product (GDP) fell 9.9% in 2020, making it the second most affected economy after Spain. “This is the biggest drop [du PIB] for over three hundred years “, points out Mr. Sunak. However, the country has chosen a European model of support: partial unemployment, aid to self-employed people, loans guaranteed by the State, etc.
The bill is therefore unprecedented: the public deficit for the year 2020-2021 will be 17% of GDP. Next year (2021-2022), even taking into account the expected rebound in the economy in the second half of the year, it will still be 10% of GDP. In total, state aid to fight the economic consequences of the Covid should amount to 407 billion pounds (470 billion euros), two-thirds already paid. “Our loans are at the height of history, outside periods of war”, recalls Mr. Sunak. Debt now stands at 107% of GDP.
The Chancellor of the Exchequer worries about the sudden tensions recorded on the American financial markets last week: “Rates can rise very sharply”
The Chancellor of the Exchequer, who knows the financial markets well from having been a banker at Goldman Sachs and having worked for hedge funds, is particularly worried about a possible rise in interest rates. “For now, the cost of our loans is not expensive [le taux britannique à dix ans est à 0,8 %]. But interest rates and inflation aren’t going to stay low forever. A 1% increase in each of them would cost us £ 25 billion a year. “ He is worried about the sudden tensions recorded in the US financial markets last week. “Rates can go up very sharply. “
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