A report by the Resolution Foundation suggests that Rishi Sunak and his chancellor Jeremy Hunt face an unenviable task of rebalancing the nation’s finances after the ill-fated economic plans of former chancellor Kwasi Kwarteng. At least £40bn will need to be found by the government amid a bleak economic outlook as part of the fallout from Liz Truss’ disastrous mini-budget, the think tank said. A combination of tax increases and spending cuts is likely to find that £40bn figure, it said. Mr Sunak and Mr Hunt are currently considering how to tackle the abysmal economic forecast ahead of the autumn statement on November 17, which was postponed shortly after Mr Sunak reappointed Mr Hunt. A recession next year could be predicted by the government’s independent forecaster, the Office for Budget Responsibility, the report said. And GDP forecasts could fall by as much as 4% by the end of 2024. Unemployment could also rise by around half a million and the weaker economic outlook could lead to borrowing by around £20 billion a year by 2026-2027, the report said. “The government has just over two weeks to finalize its plans to restore its financial credibility and the sustainability of public finances,” said James Smith, director of research at the Resolution Foundation. “While the recent focus has been on improving conditions post-Trussonomy, the central picture remains weaker growth, higher borrowing costs and expensive tax cuts that have left a budget hole of at least £40bn to plug.” Use Chrome browser for more accessible video player 2:50 How “deep” are our financial woes? Fiscal rules are difficult to follow The report warns that the government may struggle to meet its fiscal rules to reduce the debt-to-GDP ratio over the medium term and achieve a current account balance unless “significant further policy action is taken”. He said the chancellor’s “menu” of options included cuts to investment spending, which could save £10 billion but could have a negative impact on growth. The government could also choose the “austerity option”, with already squeezed departmental budgets being cut. Mr Hunt has already said that all departments must find savings. “With inflation at its highest level for 40 years, government agencies are already seeing their budgets cut in real terms by around £22 billion by 2024-25,” the think tank said. “It is hard to see how the Treasury could credibly save more than £20 billion by announcing cuts to everyday spending on public services.” Read more: Mortgage demand falls as customers struggle with high interest rates Food shortages and inflation risks rise after Russia pulls out of Black Sea export deal Use Chrome browser for more accessible video player 1:32 ‘Delay, the best way to make good decisions’ “Huge impact” by not increasing benefits and pensions By not increasing benefits and pensions in line with price rises next year, the study suggests the government could save £9bn. But he warns this would have a “huge” impact on those struggling, with a working low-income family with two children losing around £750 and a pensioner £342. Another option would be to bring back the health and social care levy to raise £15bn by 2026-27, while around £2bn could be raised by extending the ‘thief’ freezes on the income tax threshold by one more year to 2026-2027. Public investment projects are likely to face cuts as history shows they are “easy to announce but reduce growth in the long run”, Mr Smith said.
