LAST UPDATE | 17 Nov 2022
TÁNAISTE LEO VARADKAR has said the UK won’t drag Ireland into a recession, as the British government today reintroduced austerity with £55 billion (€62.8b) of tax hikes and spending cuts, declaring its economy was in recession.
Chancellor of the Exchequer Jeremy Hunt said the measures were needed to bring financial stability after recent turmoil.
Hunt claimed that his financial constraints would help to bring financial stability after recent markets turmoil, insisting they would alleviate rather than aggravate the downturn.
A day after official data showed UK inflation rocketing to a 41-year high above 11%, Hunt triggered a fresh era of austerity following the calamitous and short-lived tenure of former prime minister Liz Truss.
Varadkar said it was “very bad news”, describing the UK as one of Ireland’s biggest trading partners as well as nearest neighbour.
“Anything that happens in their economy will affect ours,” he said.
Varadkar blamed not just the war in Ukraine, but also Brexit and some recent policy decisions by the UK government.
“Those are the factors … but I don’t believe they’re dragging us into recession,” he said.
“Our economy decoupled from theirs a long time ago … it’s still our expectation that next year our economy will grow slightly and employment will continue to grow as well.”
Current Taoiseach Micheal Martin said analysis and forecasts suggest Ireland will not go into recession next year.
“That said, we’re very much aware of storm clouds gathering across Europe, and across the United Kingdom,” he said.
“Britain is a very important market to us, we export a lot to Britain, we import a lot as well and therefore, we want UK to do well. If the UK does well, many of our companies will do well.”
Martin said Ireland managed the economy well during the coronavirus pandemic which gave it resources and allows it to put money aside to deal with issues that arise.
‘UK in recession’
Hunt told the Parliament today that Britain’s Office for Budget Responsibility judged “that the UK, like other countries, is now in recession”.
Despite the downturn, Hunt and British Prime Minister Rishi Sunak insist tough action is needed after Truss unleashed a package of unfunded tax cuts that caused panic on financial markets.
The pound had hit a record-low close to parity against the dollar in late September after Truss failed to reveal the impact of her tax cuts on growth and inflation.
Her budget also triggered temporary purchases of UK government bonds by the Bank of England (BoE).
Sterling sank 1% against the US currency following today’s budget.
Pantheon Macroeconomics analyst Samuel Tombs warned the budget risked “amplifying the recession already underway”.
Hunt said the UK economy was set to shrink 1.4% next year.
The BoE, which is raising interest rates to combat sky-high inflation, has warned the UK economy may experience a record-long recession until mid-2024.
Despite the grim outlook, Hunt confirmed tax rises for workers alongside spending cutbacks.
He pledged, however, to increase spending on the cherished National Health Service amid a severe backlog in patient operations.
The chancellor added that benefits for the unemployed and pensioners would increase close to the inflation rate, and the minimum wage would climb.
Hunt also ramped up a windfall tax on oil and gas giants, whose profits have surged on fallout from the Ukraine war, to help fund support for the poorest consumers facing rocketing energy bills.
Energy giants such as BP and Shell will face an exceptional tax on profits of 35%, up from 25%, lasting an additional three years to 2028.
The British government will also impose a new temporary levy on electricity generation companies.
The conflict in Ukraine has helped push worldwide inflation to its highest levels in decades. Prices are also up on supply constraints fuelled by the coronavirus pandemic.
Britain’s economy is additionally being impacted by Brexit, BoE governor Andrew Bailey repeated yesterday.
Scrooge
Hunt at the weekend likened himself to the penny-pinching miser Ebenezer Scrooge in Charles Dickens’ festive favourite “A Christmas Carol”, but argued his plan will “make sure Christmas is never cancelled”.
He told MPs on Thursday: “In the face of unprecedented global headwinds, families, pensioners, businesses, teachers, nurses and many others are worried about the future.
“So today we deliver a plan to tackle the cost-of-living crisis and rebuild our economy.”
It comes as UK workers across various sectors have gone on strike this year to demand pay rises to compensate for surging inflation.
State-employed nurses and firefighters could be the latest groups to carry out industrial action, joining further walkouts this winter by rail workers and postal staff.
Hunt has already set about reversing Truss’s much-criticised budget by curtailing a freeze in domestic fuel bills, which have surged largely owing to the invasion of Ukraine by major energy producer Russia.
The British Government said a cap on average annual household fuel bills will rise by a fifth to £3,000.
Rachel Reeves, economy spokeswoman for the main opposition Labour party, slammed the budget.
“The Conservatives have crashed our economy, given up on growth and sent inflation through the roof.
“As usual, it is ordinary working people who are paying the price,” she added.
© AFP 2022 with reporting by Press Association
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