Rishi Sunak ruffled his own party’s feathers last week when – in reference to last autumn’s market turmoil – he told an audience in Lancashire: ‘You’re not idiots, you know what’s happened.’ This was quickly interpreted as the Prime Minister branding the MPs and business leaders calling for immediate tax cuts as ‘idiots’, sparking not only backlash but also another round of debates on a topic that has been dividing the Tory party since last summer. Just how quickly and aggressively can the party start to cut the tax burden down from its 72-year high?
Today’s public sector finance update for the month of December certainly doesn’t settle this debate, but it does help to explain why Jeremy Hunt is thought to be working towards a cautious Spring Budget – with major tax cuts saved for a later fiscal event, probably closer to a general election. It’s not simply a nervousness about spooking markets again, as Liz Truss’s government did with its mini-Budget in September; it’s that the public finances remain in a rather dire state, making the Chancellor’s pledge to have debt falling as a percentage of GDP within five years even tougher to deliver.
Last month’s public sector net borrowing figure was a staggering £27.4 billion: almost £10 billion higher than the Office for Budget Responsibility’s November forecast and £16.7 billion higher than in December 2021.
It’s the debt-interest payments that largely took December’s net-borrowing figure to its highest level since records began. And with Britain especially vulnerable to RPI-linked gilts, last month’s payments hit £17.3 billion – another record-breaking number.
The Energy Price Guarantee contributed too, with the amount the government spent on subsidies up by almost £5 billion last month compared with December 2021. This takes public sector borrowing for the financial year to December 2022 to £128.1