By: Jonathan Eida, researcher at the TaxPayers' Alliance
Rishi Sunak has tried to turn caution in economic matters into a virtue following the dramatic demise of his predecessor. On the leadership campaign trail, the now prime minister said: “If the government goes on a huge borrowing spree that is only going to make the situation worse.” As part of the new look economic strategy, one of the key pledges was to reduce our national debt as a percentage of GDP. Tax cuts were pushed into the future, despite the highest tax burden since the second world war. All to balance the books and bare down on inflation.
But inflation remains high. And the latest ONS statistics show that the government is failing to bring spending under control. In fact it looks more like the opposite.
According to the ONS, public sector net borrowing, also known as the deficit, in the financial year to May 2023 was almost £43 billion, over £19 billion more than in the same two-month period last year and over £2 billion higher than the £40.8 billion forecast by the Office for Budget Responsibility. Moreover, in the financial year to May 2023, central government borrowed £56.6 billion, £31.7 billion more than in the same period a year earlier. At the end of May 2023, public sector net debt was a total of £2,567 billion and provisionally estimated at 100.1 per cent of GDP. The last time it reached over 100 per cent was March 1961. The interest payable on central government debt was £7.7 billion, £0.2 billion less than in May 2022, but was still £0.7 billion above the OBR's forecast of £7.0 billion.
This clearly shows that the government is not getting a grip on spending. And the reality is even worse. TaxPayers’ Alliance research has demonstrated the extent to which the national debt is understated. Huge amounts of future spending pledges are unaccounted for, particularly in the shape of pensions. UK liabilities are trillions more than the headline figure suggests. The public finances are in a sorry state.
Much of the attention in politics and the media is focused on the latest inflation statistics. This is understandable. This level of inflation hits people where it hurts and is proving painfully persistent. The consumer price index showed inflation in May maintained at the 8.7 per cent level seen in April. At the turn of 2023, one of the key pledges made by Rishi Sunak was to halve inflation from the double digit highs. This now looks like a more formidable proposition than first imagined.
But these issues are linked. inflation will only be brought under control once the government gets its finances in order. Racking up bills on the country’s credit card will only add to inflationary pressures.
Yet, rather than looking at spending, ministers have tried to solve their financial woes by hiking taxes. This may feel the easier option - fewer interest groups to complain when their favourite pet project gets cut. But this plan of action only penalises taxpayers, already struggling with inflation, soaring interest rates and a sluggish economy, much of this driven by failures on Whitehall. A better way for the government to get its finances in order would be to get serious on spending. Otherwise the taxpayers of today and tomorrow will continue to suffer.