A boost to the public finances is good news in the short term but there is no longer-term guarantee of happier times ahead
Make no mistake – after a Covid-era spending splurge, the public finances areAnd, of course, the deficit would be significantly larger if the Conservatives had not hiked the proportion of GDP handed over to the state in taxes to itsNonetheless, the boost reported by the Office for National Statistics does slightly widen the range of options available to the Prime Minister and Chancellor ahead of the autumn statement coming later this year.
Another option would be pushing up the threshold at which taxpayers become liable for the basic and higher rate from income taxes, a sort of compensation for the burden of inflation which has sucked millions into paying more than they used to. But there would be undoubted downsides. The Chancellor is well aware that his last Budget left his fiscal rules teetering on a knife edge: his “headroom”, the amount by which borrowing is coming in within his five-year fiscal rules, is just £6.5bn. So an £11bn bonus is very welcome – but the outlook would not have to deteriorate much to put his plans on the wrong side of the line.
In any case, the good news so far this year may well be wiped out by an increase in long-term borrowing costs as a result of higher interest rates. Given the circumstances in which they came to power, Mr Sunak and Mr Hunt are always cautious about doing anything that might undermine the UK Government’s fiscal credibility and prompt what top economist Simon French describes as “a renewed puke in debt markets”.
It will be no consolation to Tory MPs – or hard-pressed taxpayers – but the fact is, there is little chance of a let-up in fiscal policy any time soon.
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