The Institute for Fiscal Studies called out Sunak’s claims that debt is falling, claiming a victory in one of his five priorities. The Prime Minister posted a video on X yesterday saying “debt is falling“, while slightly toning down his words in the Commons that “debt is set to fall“. The only problem is that this isn’t entirely accurate…
According to the Office for Budget Responsibility, debt is only set to fall between 2026-27 and 2027-28, and latest ONS figures show that underlying government debt actually rose to 89.3% of GDP at the end of September, compared to 83.4% last year.
The IFS‘ Ben Zaranko blasted Sunak’s claims, saying, “It’s not accurate to say that debt is falling. Public sector debt is currently rising in cash terms, real terms, and (most importantly) as a per cent of national income.” Wishful thinking…
The Consumer Price Index rose by 8.7% in the year to May 2023 – this is the same level as the year until April. The new figures, released today from the ONS, are far worse than expectations of a drop to 8.4%. At the same time, core inflation actually rose. It’s now at 7.1% up from 6.8%. That’s the highest level for 30 years…
In the context of rising mortgage costs, all eyes are now on the Bank of England which is expected to further raise interest rates tomorrow. The latest ONS figures also included data for net debt, which increased to 100.1% of GDP.
With this new data, it’s worth taking a look at how the government is performing on the five priorities they’re so desperate to repeat:
The only pledge Rishi is currently meeting is growing the economy – which he’s managing with a measly 0.1% growth. With further rate rises on the cards, even this looks unsustainable…
The latest figures from the Office for National Statistics (ONS) show public sector net borrowing hit £21.5 billion in March – £200 million higher than expected, and the second-highest March borrowing figure since records began thirty years ago. Annual borrowing reached £139.2 billion in the year to March, the fourth highest in history. It means government debt is now a whopping £2.53 trillion, or 99.6% of GDP. The highest since the early 1960s…
The sliver of ‘good’ news is the government’s debt interest payments fell to £3.9billion in March, which is a fifth of its peak in June last year. Although with the total debt interest payments for the last financial year reaching £106.6 billion, that’s not much to celebrate. For context, the total Health budget for 2022-23 is £180.2 billion.
Part of the explanation for these figures is the decision to extend the energy support scheme in the Budget, with Chancellor Jeremy Hunt saying:
“…We stepped up to support the British economy in the face of two global shocks, but we cannot borrow forever. We now have a clear plan to get debt falling which will reduce the financial pressure we pass onto our children and grandchildren.”
A reminder that Rishi’s third pledge is to reduce the debt, not increase it…
The gilt market is reacting badly to news that the government will increase the deficit as it cuts taxes across the board. Bond market vigilantes rightly doing what bond market vigilantes do. Important to contextualise that even after Kwasi’s extensive Reaganite package of growth-oriented reforms, the UK’s debt to GDP ratio will remain at the lower end of the G7. It is worth putting this into an international context…
Interest payments on UK debt soared to an August record of £8.2 billion last month, with public sector borrowing hitting £11.8 billion – nearly double the £6 billion predicted by the Office for Budget Responsibility (OBR) in May. Although still £2.6 billion less than August 2021…
Reacting to the figures this morning, Chancellor Kwasi Kwarteng emphasised he’s sticking to the plan: go for growth. He said:
“Strong economic growth and sustainable public finances going hand in hand. As Chancellor, I have pledged to get debt down in the medium term. However, in the face of a major economic shock, it is absolutely right that the government takes action now to help families and businesses, just as we did during the pandemic.”
The mini-budget is set for this Friday, where cuts to stamp duty, corporation tax and national insurance are all on the menu. The rumoured one percent cut to income tax is now expected to be held back until a full budget further down the line. Before all that, BEIS is set to announce its big plan to cap energy costs for businesses at around 9am this morning. Don’t expect that borrowing figure to go down any time soon. Stay tuned…
On a brighter note, with GDP being revised up, public sector net debt is now considered to be under 100% of GDP – sitting at a less than comfortable 99.5%. Yet the increase in borrowing is set to continue apace, after the Chancellor extended furlough and loan schemes to the end of April 2021. The Government can therefore brace itself for a fresh round of unflattering ‘debt is now larger than the whole economy’ headlines when the 100% point is soon breached again.
