Surging borrowing ‘bad news’ for taxpayers

Jeremy Hunt announces changes to measures from mini-budget

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A rise in Government borrowing is “bad news” for Britons facing a “punishing” tax burden amid a cost of living crisis compounded by continued economic turmoil, the Taxpayers’ Alliance has said. The comments come in response to news that Britain’s borrowing rose to £20billion last month, an increase of £2.2billion from a year earlier, according to the latest data from the Office of National Statistics (ONS).

It is the second highest rate of borrowing for September since monthly records began being charted in 1993.

The Government is expected to borrow billions of pounds to help fund their measure capping energy bills for consumers.

Under the now-outgoing Prime Minister, Liz Truss’s original plan – announced with her first Chancellor Kwasi Kwarteng – this support would have lasted into 2024, and was predicted to cost the Treasury in excess of £100billion.

However, its announcement along with a series of proposed tax cuts spooked markets, which feared Ms Truss was imperilling the stability of the nation’s finances.

Predictions by the Institute for Fiscal Studies (IfS) later suggested the package would create a black hole of around £60billion in the Government’s finances.

The fiscal event promptly saw gilt markets spiral, as investors looked to sell off their holdings of Government debt, and the Bank of England was forced to make a rare intervention in the market.

Mr Kwarteng’s successor, Jeremy Hunt, rolled back on many of the commitments made in the September mini-budget, and scaled back the support for household energy bills so it will only last till April next year. This is expected to cost around £60billion.

Reacting to the ONS’s latest findings, Duncan Simpson, chief economist of the Taxpayers’ Alliance, told “Surging borrowing is bad news for Brits facing a punishing tax burden.

“With interest rates on the rise, sustained public spending is racking up an enormous bill for taxpayers down the line.

“The Government must start making savings to get the national debt under control.”

Despite being a rise on 2021, last month’s Government borrowing was lower than what it was in September 2020.

However, at that time the Government was having to borrow vast sums to shore up the British economy as it was hammered by the coronavirus pandemic and successive lockdowns, including the funding of the furlough scheme.

For the financial year so far, beginning in April, state borrowing stands at around £72.5billion, down around 26 percent on the previous year – but double the amount borrowed in the same period in 2019, before the pandemic hit.

It is believed that the increase in borrowing has been driven by higher debt interest due to rising inflation.

Carl Emmerson, deputy director of the Institute for Fiscal Studies, said the Government’s energy price cap could see its borrowing for the year reach nearly £200billion – double what has been forecast by the Office for Budget Responsibility.

After Mr Kwarteng’s £45billion in unfunded tax cuts were delayed or scrapped altogether, the current Chancellor hopes to show he can fix the public finances by a return to pseudo-austerity.

Following the announcement of the borrowing figures, Mr Hunt said in a statement: “Strong public finances are the foundation of a strong economy. To stabilise markets, I’ve been clear that protecting our public finances means difficult decisions lie ahead.

“We will do whatever is necessary to drive down debt in the medium term and to ensure that taxpayers’ money is well spent, putting the public finances on a sustainable path as we grow the economy.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the consultancy was anticipating that the Chancellor may announce as much as £50billion in cuts in his medium-term fiscal plan, which is due to be published on October 31.

However, he added that while the cuts may help balance the Government’s books, they could also amplify the looming recession.

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