Daily Briefs


Photo : AP Photo/Rui Vieira

05 October 2022, Wednesday | NIAS Europe Daily Brief #324

UK Growth Plan: Objectives and reactions | War in Ukraine: Day 223

EM Daily Focus
By Madhura S Mahesh

UK Growth Plan: Objectives and reactions
On 03 October 2022, The Chancellor of Exchequer Kwasi Kwarteng announced that the government is scrapping the 45 per cent rate of income tax on income over GBP 150,000 tax-cut plan in response to widespread criticism. On 26 September, the pound fell to USD 1.03 as a response to the growth plan announced on 23 September and investors started to demand a high rate of interest.
 
On 23 September, Kwarteng presented to the parliament a Growth Plan to pull up the declining British economy by addressing the issues contributing to it. His speech talked about the importance of lowering energy costs, reducing inflation, helping the public tackle the cost-of-living crisis, and helping businesses. He projected a 2.5 per cent growth rate as the goal and introduced ambitious policies to help the government achieve this.
 
Three objectives of the Growth Plan
The growth plan or the mini budget looked at ways to increase investment in the economy while at the same time helping the people tackle rising energy bills and cost of living. To achieve this the government proposed a series of tax cuts.
 
First, tax cuts. The government proposed to reduce the income tax rate to 19 per cent from April 2023 and to slash the 45 per cent rate of income tax on income above GBP 150,000. A proposal was also put forth to cut the proposed increase of corporation tax from 19 per cent to 25 per cent in April 2023. The government included a plan to cut Stamp Duty Land Tax which is paid when people buy new homes. According to Kwarteng, this will encourage the public to invest more in the residential sector, increase spending on household goods and create and help jobs in the property sector. Kwarteng proposed to finance this ambitious plan through borrowings. The Tax cuts proposed will cost the government GBP 72 billion in new borrowings. He did not outline the effect of the tax cuts on borrowings and said that the same will be done in the mid-term November 2023 budget. 
 
Second, energy price cap. The plan proposes to put a price cap on per unit price that people pay for electricity and gas through the Energy Price Guarantee. This will be helping them save GBP 1,000 on energy bills and another GBP 400 through government intervention in winter. It also plans to introduce the Energy Bill Relief Scheme which aims to reduce the energy bills of businesses and the public sector. All of this is to ensure that inflation will reduce by at least five percentage points.
 
Third, improve businesses. Kwarteng emphasised that this is a supply-side budget with plans to increase the supply of industries to meet the growing demand and boost the British economy. He said that the government is looking to set up investment zones in 38 local areas to increase investment and innovations. These zones will offer tax benefits, no stamp duty, and other such incentives to attract investors.

What have been the market, domestic reactions?
First, drop in the value of pound and UK stocks. With the government's plan to increase the number of borrowings, investors became sceptical and as a result, there was a huge drop in UK stocks. At the same time, the value of the pound fell to a 37-year low of USD 1.09 and EUR1.12. These numbers dropped further on 26 September to USD 1.03 and finally to USD 1.08. This led to goods being traded in dollars like oil becoming even more costly and increasing the cost-of-living crisis. This drop in the pound has a direct effect on inflation rates pushing up the prices of commodities in the UK’s economy. 
 
Second, the Bank of England offer to buy bonds. On 28 September, the Bank of England stepped in and announced that it would be buying government bonds to soothe the financial turbulence and keep a check on borrowing interest rates. The interest rates which were set to hit an all-time high of five per cent were reduced to below four per cent by the investors. At the same time, the Bank cautioned that it was a short-term, time-limited step and had plans to sell off all the bonds. The Bank also announced that it will increase the rate of interest if required.
 
Third, internal opposition within party and public. The growth plan drew a lot of criticism within the conservative party, where former Conservative Chancellor Lord Kenneth Clarke expressed his worries that this would risk increasing inflation rates. There is a rising fear that the party will not come into power in 2024 due to these policies. It is viewed that consensus that many ministers will not support the government if it introduces any more reforms to cut welfare benefits to pay for the plan. This led to a divide in the party with Prime Minister Liz Truss loyalists backing the plan and accusing the dissidents of staging a coup and undermining the authority. Domestically there has been an opposite reaction to what the government wanted. Mortgage lenders seeing the fluctuating interest rate have withdrawn a lot of products to re-evaluate the prices. This has created a fear in the public on the affordability factor.

IN BRIEF
By Sai Pranav and Madhura S Mahesh

GERMANY
Coal used as a short term measure to secure the energy supply
On 04 October, Germany’s energy company RWE made a deal with the government that it would phase out coal by 2030. The energy firm is looking to temporarily increase the production of energy in the lignite-fired power stations, Neurath D and E power plant units to ensure supply security in amidst the ongoing energy crisis. The coal powered power plants which were scheduled to be shutdown by 31 March 2024. To secure the supply of energy, coal usage is increased, but RWE said it would ensure that all the fossil fuel powered energy plants would be closed by 2030. The company looks to reduce the damage done to the environment by using fossil fuels as soon as possible after the short-term usage. (“Germany's largest power producer to end coal use by 2030,” Deutsche Welle, 04 October 2022)

REGIONAL
Increase in the number of deportation in the EU states in second quarter of 2022
On 03 October, Eurostat, the EU’s statistic body, released figures that showed a spike in number of deportation orders issued in the EU in 2022’s second quarter. A total of 96,550 non-EU citizens were ordered to deport from the EU states in second quarter of the EU and 23,110 deportation took place, including withing the EU states. There has been a 15 per cent increase in deportation orders and 11 per cent increase in the deportation when compared ti the second quarter of 2021. France was has the largest number of deportation orders with 33,450. Greece takes the second place with 8,750 orders and Germany gave out 8,275 orders. The actual deportation figures constitutes France deporting 3,590 and German carrying out 2,765 deportation. Sweden came in third after France and Germany in deporting 2,380 people. The majority of people who are being deported are Albanians followed by Georgian, Russians and Turks. (“EU countries again carrying out more deportations,” Deutsche Welle, 03 October 2022)

EU launches new Youth Action Plan
On 04 October, the EU introduced its first Youth Action Plan under the EU External Action for 2022-2027. Celebrating the European Year of Youth, the EU hopes to harness the changing demography and empower the youth for them to emerge as partners to help build a sustainable future. The action plan rests on three pillars, partnership to engage, partnership to empower and partnership to connect. The EU hopes to connect the Youth Action Plan with the Global Gateway strategy to connect youth across the globe and provide them with various opportunities. This strategy looks to break down barriers and combat various challenges faced by today’s youth. The Action Plan also introduces three new initiatives under it, the Youth and Women in Democracy initiative, the Youth  Empowerment Fund and the Africa-Europe Academy. The EU hopes that through this plan it can achieve its international commitments such as the Paris Climate Agreement and the Sustainable Development Goals of 2030. ("European Year of Youth 2022: EU adopts the first Youth Action Plan in EU External Action to strengthen engagement with young people worldwide", ec.europa.eu, 04 October 2022) 

ECONOMY
SWIFT releases findings of Central Bank Digital Currency
On 05 October, SWIFT released its findings of an eight-month test looking at various digital currencies and technologies. This experiment was done to create a centralised Digital Currency which Central Banks can use for payments. The participants of the trail were the Central Banks of France and Germany and global vendors such as Standard Chartered, USB and HSBC. The Head of Innovations of SWIFT, Nick Kerigan explained how they are aiming to create a system where all the parties involved can connect to a main-hub and conduct all their transactions in digital currency. This is to increase efficiency of transactions and prevent a clutter of networks. A parallel test is also being conducted to see if they can convert digital assets like stocks and bonds  into tokens that can be traded. ("SWIFT sets out blueprint for central bank digital currency network", euronews, 05 October 2022)

GENDER
Slovenia legalizes same-sex marriage and adoption 
On 04 October, Slovenian parliament legalized same-sex marriage and adoption through a constitutional amendment. Through this Slovenia becomes the first East European country to do so. This move comes after a constitutional court recognized the need for such an amendment to protect the rights of same-sex couples. The bill was passed with 48 votes in the parliament. ("Slovenia becomes first East European country to legalise same-sex marriage and adoption", euronews, 05 October 2022)

SCIENCE AND TECHNOLOGY
Single charger devices across the EU approved by the parliament
On 04 October, European Parliament press release reported that the EU consumers will have a single charger for every device by the end of 2024. The parliament approved the decision that all the mobile phones, tablets, cameras and other devices sold in the EU will be equipped with type-C port by the end of 2024 and Laptops by 2026. The single charger rule will help in reducing e-waste due to disposed chargers and decrease unnecessary purchase of chargers. No new charger will be required when buying new devices. All devices will have fast charging capabilities. It will also get rid of “lock-in” effect where a consumer depends on a single manufacturer for all the products. (“Long-awaited common charger for mobile devices will be a reality in 2024,” europarl.europa.eu, 04 October 2022)   

INTERNATIONAL
French cities say no to outdoor viewing of Qatar World Cup
On 04 October, Deutsche Welle reported that Paris will join Marseille, Bordeaux, Nacy, Strasbourg, Lille and Reims in prohibiting fanzones with large TV screens inside cities during the World Cup in Qatar. Qatar is facing widespread criticism over the treatment of migrant labourers building stadiums and other infrastructure facilities in the hot desert. Many countries have joined in criticizing the Arab country for its migrant labour abuse and exploitation ahead of the football World Cup. Another reason for prohibiting the outdoor fanzones is that the tournament will take place during winter, which is not a ideal weather for viewing outside. As a show of criticism, Denmark unveiled muted jersey for the World Cup and many European football federation express their support to issues like LGBTQ+ rights. (“Paris ditches big screens for Qatar World Cup,” Deutsche Welle, 04 October 2022)

War in Ukraine: Day 223
By Padmashree Anandhan

War on the Ground 
On 04 October, Ukraine President Volodymyr Zelenskyy signed a decree No. 687/2022 announcing the decrees singed by Russia’s President Vladimir Putin on recognising LPR, DPR, Zaporizhzhia and Kherson regions as “null and void.” The decree emphasized the sovereign territory and the territorial integrity of Ukraine in the internationally acknowledged borders.

On 04 October, Prime Minister Denys Shmyhal announced UAH four billion as rapid recovery fund to reconstruct the most affected war zones such as “Kharkiv region, Kyiv region, Chernihiv region, Sumy region.” It is aimed to bring back the critical infrastructure in terms of energy and part of crisis response.

According to the National Guard of Ukraine, a “ruscist ammunition depot,” of Russia was taken down in the Kharkiv region, where close to 483 areas have been restored from the Russian occupation. Mala Oleksandrivka was reported to be freed by the Ukrainian forces in the Kherson region. These areas were earlier part of Russia’s referendums.

On 04 October, the Head of the Zaporizhzhia Regional Military Administration, Oleksandr Starukh reported on Russia setting up a “state border” in the Vasylivka of Zaporizhzhia region. He said: “The occupiers try to build a ‘border’ as they once did in Crimea and Donbas.” On the same day, Zelenskyy held a call with India’s Prime Minister Narendra Modi on the possible partnership between Ukraine and India, global food security, implementing the grain exports and nuclear safety.
 

The Moscow View
Claims by Russia
On 04 October, the Russian Parliament ratified the “unification of treaties” of  DPR, LPR, Kherson, and Zaporizhzhia. Upon Russia President Putin signing the treaty, it was lawfully accepted by the Constitutional Court with a uniform voting. The last step will be to make changes to the constitution to finalize the annexation.

On 04 October, Russia’s Defence Minister Sergey Shoigu claimed that more than 200,000 personnel have been recruited for the Russian Armed Forces. He stated that the recruits will be provided equipment, training and combat coordination skills, only upon the completion they will be deployed on the special military operation in Ukraine. Those who do not complete the mandatory services will be sent home as per his remarks.

On 04 October, RT reported on the Belarus President Alexander Lukashenko remarks on the Belarus’s role in the military operation of Russia. In his address Lukashenko said: “Our role is to prevent this conflict from spreading into the territory of Belarus, first of all. And, secondly, it is to prevent a strike against Belarus from Poland, Lithuania and Latvia under the cover of the special military operation.” He maintained Belarus stance to be neutral for Russian and Ukrainian refugees, countered the claims on Belarus helping Russia militarily by saying that Belarus would not be involved in the Ukraine war beyond a limit and use its national forces only to guard Belarus.

The West View
Responses from the US and Europe 
On 04 October, the EU Finance Ministers announced EUR 20 billion as funds to reduce the dependency over Russian energy. The fund will aim to invest in those where energy can be produced quickly and simultaneously the increasing energy prices can be brought under control.

The US announced to provide USD 625 million to Ukraine as a security aid, which will include, four HIMARS systems, rocket launchers, artillery, ammunition, and armoured vehicles to up bridge the attack capacity.

The Ministry of National Defence of Turkey reported on the total Ukraine grain exports count. It stated that close to six million tonnes of grain had been exported through the agreed grain corridor, where corn, wheat, sunflower meal, sunflower oil, sugar beet, soybeans, peas and barley were reported to be shipped.

The Global Fallouts
Implications of the Ukraine war
On 04 October, Ukraine Minister of Finance Serhiy Marchenko and Regional Director of the World Bank for Eastern Europe agreed to provide USD 529.9 million. The fund is given under the joint implementation with the International Bank for Reconstruction and Development (IBRD) to help Ukraine’s public expenditure and to assure a sustainable administration. In a statement: “The loan proceeds will be directed to the general fund of the State Budget of Ukraine for the reimbursement of payments to employees of the budget sector, provision of pension payments and certain state social assistance programs, support for low-income families.”

On 03 October, Islamic Public News Agency reported on Iran's Foreign Ministry spokesperson, Nasser Kanaani response on Ukraine war. In the press address, he stated that Iran was ready to settle the conflict peacefully and on the question of Russia’s referendum’s, he said that Iran would support the move under the international laws of the UN.

On 04 October, IAEA Head, Rafael Grossi reported on the release of Ihor Murashov, who was earlier detained by the Russian forces in the Zaporizhzhia. The Guardian reported on North Korea becoming the only country to recognise the referendums of Russia taken in parts of Ukraine. In case of the relations between Japan and Russia, it continues to decline with the Japan Foreign Minister calling back the Russian Consul back to return Japan before 10 October. In a statement released by Modi after his call with Zelenskyy said: “…there can be no military solution to the conflict and conveyed India's readiness to contribute to any peace efforts. Reiterated the importance of respecting the UN Charter, International Law, and the sovereignty and territorial integrity of all states.”

References
“Russian invaders building ‘state border’ in Zaporizhzhia region,” Ukrinform, 04 October 2022
“DECREE OF THE PRESIDENT OF UKRAINE No. 687/2022,” president.gov.ua, 04 October 2022
“Gov’t has directed over UAH 4 billion to the rapid recovery of regions affected by the war, says Denys Shmyhal,” kmu.gov.ua, 04 October 2022
“The President of Ukraine held a telephone conversation with the Prime Minister of India,” president.gov.ua, 04 October 2022
“National Guard members destroy Russian ammunition depot in Kharkiv region,” Ukrinform, 04 October 2022
“Ukrainian Air Assault Forces say they liberated Mala Oleksandrivka in Kherson region,” Ukrinform, 04 October 2022
“Russian partial mobilization numbers revealedv,” RT, 04 October 2022
“Belarus explains its role in Russia–Ukraine conflict,” RT, 04 October 2022
“Russia’s parliament fully ratifies unification treaties,” RT, 04 October 2022
“Russia-Ukraine updates: Zelenskyy reports 'fast and powerful' advance in the southv,” Deutsche Welle, 04 October 2022  
“TR Ministry of National Defense update,” Twitter, Turkish government agency, 04 October 2022
“Ukraine will receive additional financing of 529.9 million dollars from the World Bank,” mof.gov.ua, 04 October 2022
“Spox says Iran backs efforts to peacefully resolve Ukraine conflict,” Islamic Public News Agency, 03 October 2022
“Russia-Ukraine war latest: what we know on day 223 of the invasion,” The Guardian, 04 October 2022

Other Daily Briefs