HOPES of pre-election tax cuts were dealt a blow as it emerged UK debt was bigger than the size of the economy for the first time since 1961.
The borrowing nightmare — with the country owing £2.6trillion by the end of May — gives PM Rishi Sunak little room for ballot box sweeteners.
1
The huge debt, outstripping GDP at £2.45trillion, has been blamed on big spending on wage deals and hand-outs.
Inflation sticking stubbornly high at 8.7 per cent and rising borrowing costs together pushed debt interest alone to £7.7billion for the month — some £700million more than forecast at the March Budget.
The grim news came with the Bank of England poised to raise interest rates still further.
Ministers had wanted to see Chancellor Jeremy Hunt cut as much as 2p off the basic rate of income tax to keep Labour at bay at an election likely next year.
But analyst Samuel Tombs, chief UK economist at Pantheon Macroeconomics, declared: “Pre-election tax cuts no longer look feasible.”
Ruth Gregory, from Capital Economics, added: “May’s poor public finances figures cast further doubt on the Chancellor’s ability to unveil big pre-election tax cuts while still meeting his fiscal rules.”
But ex-Cabinet Minister John Redwood insisted: “There needs to be targeted tax cuts to stimulate growth to get the deficit down.
“We need lower inflation. So cut VAT on energy, cut carbon taxes and stop the hydrogen tax. Government needs to help get prices down, not tax them higher.”
Most read in Money
John O’Connell, chief executive of the TaxPayers’ Alliance, added: “As national debt hits a 60-year high, it’s clear that the country is dealing with an unprecedented cost of government crisis.
“The Chancellor needs to get serious on spending and give himself room for tax cuts to provide much-needed relief.”
Public sector net borrowing stood at £20billion for last month which was £10.7billion higher than last year, and the second highest May borrowing since monthly records began in 1993.
For the first two months of the year, borrowing hit £42.9billion — up £19.6billion on the same period last year.
The recent pay deal for NHS workers added £2.7billion to spending for last month, along with £3.6billion on energy support and £3billion uprating benefits.
Martin Beck, chief economic adviser to the EY ITEM Club, predicted: “The Chancellor would likely respond by adding more post-election spending cuts on top of a spending squeeze that already looks challenging.”
Mr Hunt said: “We rightly spent billions to protect families and businesses from the worst impacts of the pandemic and Putin’s energy crisis.”
But Shadow Chancellor Rachel Reeves said the Tories were running the economy into the ground.
She went on: “Whatever choice they make, they always leave working people paying the bill. Labour will bring security for our economy and for family finances.”
This post first appeared on thesun.co.uk
