UK budget offers relief but outlook 'grim'

Pledging relief from "global economic storms", the United Kingdom's finance minister, Chancellor of the Exchequer John Healey, unveiled measures on Wednesday to ease living costs for households in the first budget under UK Prime Minister Andy Burnham.

But the independent Institute for Fiscal Studies, or IFS, has warned the measures will not reverse a dire outlook for household incomes.

Healey's cautious fiscal plan raises taxes on banks, gambling companies, savers, and landlords while tightening tax rules for online marketplaces like Amazon and eBay — in order to fund cash handouts for households to help pay for rising energy bills, and to provide some tax relief for small businesses.

"This is a budget for the working people of Britain delivered at a time when global pressures are hitting people at home," Healey told lawmakers in his budget statement to Parliament.

Around 20 million households in lower-value properties will receive a one-time 100 pound ($133) payment to cushion rising energy bills — a measure costing 2.6 billion pounds. Healey also announced a freeze on fuel taxes until at least July, at a cost of 1.4 billion pounds.

Banks that have profited from higher interest rates will face a doubled surcharge on profits — rising to 6 percent for 15 months from January, Healey announced.

"Amid global economic storms, I am looking to our banks to help fund breathing space for British families," Healey said.

Forecasters warned the plans, combined with inflation and higher borrowing costs, would add 65 billion pounds to government debt over five years and delay deficit reduction.

The IFS said on Thursday the budget could leave a substantial funding gap by 2030-31.

The Office for Budget Responsibility, or OBR, said living standards would fall before barely recovering to pre-pandemic levels by 2030.

"It's a pretty grim picture," senior OBR official David Miles told reporters.

The OBR expects inflation to peak at 3.8 percent in early 2027, with GDP forecast at around 1 percent through 2027.

David Aikman, director of the National Institute of Economic and Social Research, cautioned that energy prices and borrowing costs may not ease after 2027.

"If the bet comes up tails, the chancellor will have to change course and cut spending or raise taxes," he said.

IFS director Helen Miller said the budget was "broadly" as expected — a "relatively small" cost-of-living package, a "handful" of tax rises, and higher borrowing.

She said Healey failed to provide clarity on his plans.

"Public service spending plans look extremely tight," she added. "They don't look to me like plans that this government would want to deliver."

On household incomes, the outlook was bleak.

Miller said: "This decade looks set to be the worst decade for growth in household incomes on record. No amount of temporary cost-of-living packages will fix that."

Healey also confirmed a target of spending 3 percent of GDP on defense by 2030, saying details on how that level would be reached will come when he unveils three-year spending plans next year.