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UK's Kwarteng says debt will fall as proportion of GDP in medium term

·2-min read
Britain's Chancellor of the Exchequer Kwasi Kwarteng Kwarteng to deliver mini-budget

By Alistair Smout and David Milliken

LONDON (Reuters) - British finance minister Kwasi Kwarteng said on Friday the government would publish a plan to reduce debt as a proportion of GDP, but gave little detail on the outlook for borrowing as he announced a large package of spending and tax cuts.

The UK Debt Management Office said it was raising its debt issuance plans for the current financial year by 72.4 billion pounds ($81.0 billion) to 234.1 billion pounds in response to the announcements.

Kwarteng said that he was targeting 2.5% growth in the medium term, but did not give a forecast for the deficit or debt beyond what the DMO announced.

"In due course, we will publish a Medium-Term Fiscal Plan, setting out our responsible fiscal approach more fully, including how we plan to reduce debt as a percentage of GDP over the medium term," Kwarteng told parliament in a fiscal statement.

Kwarteng said that the energy support package would cost 60 billion pounds ($67.22 billion) over the next six months, while tax cuts announced are estimated to be worth 45 billion pounds.

He said that the Office for Budget Responsibility would publish a full economic and fiscal forecast before the end of the year, incorporating the costs of the measures announced on Friday.

But Mel Stride, a Conservative who is chair of the Treasury Select Committee, criticised the absence of an OBR forecast accompanying the statement, which the government had said was not a formal budget.

"When the markets are getting twitchy about government bonds, when the currency is under pressure, now is the time for transparency and make it very clear that whatever tax cuts or otherwise there may be they are done in a fiscally responsible manner," he said.

"(Kwarteng) should have come forward with an OBR forecast."

Prime Minister Liz Truss has argued that such a forecast would take too long, given the urgency of the energy crisis.

In March, the independent OBR forecast borrowing of 99.1 billion pounds for the 2022/23 financial year and 50.2 billion pounds for 2023/24 - equivalent to 3.9% and 1.9% of gross domestic product respectively.

Paul Johnson of the Institute for Fiscal Studies said that he estimated the debt would rise - not fall - under the plans.

"With 45 billion pounds of tax cuts and a slowing economy... adding this to our most recent forecast we can expect to be borrowing, getting on for 120 billion pounds in 3 years time," he said.

"If we’re doing that, then the debt will rise year on year."

($1 = 0.8925 pounds)

(Reporting by David Milliken and Alistair Smout, additional reporting by Farouq Suleiman; editing by William James, Kate Holton and Toby Chopra)