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The UK's new Chancellor, Philip Hammond, has said the Government has abandoned the plan to bring the UK's finances into balance by 2020, stating that fiscal policy will be used to buoy the economy during the upcoming period of uncertainty for businesses while the UK negotiates its exit from the European Union.
He said the Government is committed to reining in the deficit and will avoid expansionary fiscal policy, but will take "whatever steps are necessary to protect this economy from turbulence." The corporate tax rate will still fall to 17 percent as planned, but he hinted that tax hikes in general may be necessary to replace EU funding for some firms and projects. He reiterated that he will use the next Autumn Statement – his first – to "reset" fiscal policy.
Alfie Stirling of the Institute for Public Policy Research, a think tank, said: "Today's confirmation from the Chancellor that he will 'reset' fiscal policy is welcome. However there is a bad reset, and then there is a good reset, and currently it seems the Chancellor is unclear which he is going for."
"A bad reset would see the Chancellor abandon Osborne's target to get to a surplus by 2020, but retaining the insistence on returning the public finances to balance without any plan to unlock serious resources for further investment or to modernise our creaking tax system. This is likely to mean the country borrowing more in the future out of necessity, to cover higher welfare and lower tax receipts further down the line."
"A good reset would see a framework that allows the country to borrow strategically to increase future productivity, a clear plan for that new investment, and a strategy to improve efficiency and fairness in the tax system. Tax streams from wealth should be expanded, and inefficient tax reliefs – such as those on buy-to-let mortgages, some elements of capital gains and pension contributions for high earners – should be revisited to bring in new resources. This doesn't mean giving in to fiscal unsustainability - in fact it's the only way to ensure our public finances are sustainable over the long term."
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