The Office for National Statistics (ONS) released figures showing that the UK’s government borrowing was lower in September than economists had anticipated, but still high at £14.3bn. While this was £1.6bn less than in September 2020, it represented the sixth-highest level recorded since 1993. The borrowing figures come ahead of the Autumn Statement in November, but Chancellor Jeremy Hunt has played down expectations of any tax cuts.
While some organisations, such as the Institute of Economic Affairs, have called for well-targeted tax reductions, the Resolution Foundation warned that inflation had resulted in higher tax income figures in the short term, but higher interest rates could negate those benefits in the medium term. Mr Hunt has previously said near-term tax cuts are “virtually impossible” and that inflation-reducing measures must be prioritised.
UK public spending is particularly vulnerable to inflation because a significant proportion of government debt is index-linked, which means higher inflation leads to greater interest payments. Government debt currently stands at £2.6tn, more than 2% higher than last year, with increasing debt leading to higher interest payments, potentially making tax cuts an unwise proposition for the future.
The Institute for Fiscal Studies considers the UK to be in a “horrible fiscal bind,” with little scope to either increase public spending or decrease taxes. While Mr Hunt has acknowledged that the current level of expenditure on debt interest is unsustainable, tax cuts do not appear to be on the government’s immediate horizon
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