Categories: Aggregate Demand and SupplyEconomic NewsGovernment Policy

At what cost should the UK balance its budget?

All eyes are on the UK’s new chancellor, Rishi Sunak, who will soon be announcing the government’s budget for the coming year.

Since 2010, the UK government has been aggressively cutting public expenditure in an attempt to bring spending into balance by 2022. Whilst the budget deficit has been narrowing year-on-year, there has been huge amounts of discontent from the British public who feel that it has been at the expense of the most important public services such as education and healthcare.

UK government budget 2010-2019 (% of GDP)

source: tradingeconomics.com

It would appear that continuing to spend less is not going to be enough to balance the budget, and according to a report by the Institute for Fiscal Studies, the only way to achieve it will be by increasing taxes.

This is going to put the recently elected conservative government in a very difficult position. In their election manifesto, they promised the British people that a vote for them would mean huge injections of spending in education and the NHS (National Health Service), as well as no increases in income tax, national insurance, or VAT.

It would seem the only option then is to increase corporation tax. Whilst this would provide the much-needed capital for balancing the budget, it will not do much to help a desperate UK looking for much needed investment as it goes it alone without the European Union!