Public finances still on the wrong path, warns IEA economist
24 January 2023
SUGGESTED
Government and Institutions
Mark Littlewood writes in The Times
23 January 2023
Energy and Environment
Lifestyle Economics
15 November 2024
Commenting on today’s ONS public sector finances figures, Julian Jessop, Economics Fellow at free market think tank the Institute of Economic Affairs, said:
“The latest data on the state of the UK public finances are not as poor as the headlines suggest, but they are still bad.
“Borrowing in December was far higher than expected and a new record for the month. However, this overshoot mainly reflected changes in the accounting treatment of student loans. Total borrowing in the financial year-to-date was still £2.7 billion lower than recently forecast by the OBR.
“The December data were also boosted by two factors that should be temporary. One was the sharp rise in spending on energy support schemes, which should fall away this year as global energy prices drop and the schemes are rolled back.
“The other was a jump in interest payable on government debt, to £17.3 billion. However, £13.7 billion of this was accounted for the RPI uplift on the principal value of inflation index-linked bonds, and therefore money that will only be paid out in dribs and drabs over many years. The amount actually paid out in December itself was more like £3.6 billion.
“What’s more, the December data were based on the change in the RPI between September and October, when RPI inflation peaked. The headline numbers for debt interest payments should therefore fall sharply this year as well.
“Nonetheless, the public finances are on the wrong path and the Treasury will argue that the Chancellor has no headroom for tax cuts anytime soon. This is not necessarily right: tax cuts that support growth and boost the supply-side performance of the economy could actually help the public finances. But both borrowing and debt are already worryingly high.”
ENDS
Notes to editors
Contact: media@iea.org.uk / 07763 365520
IEA spokespeople are available for interview and further comment.
“The latest data on the state of the UK public finances are not as poor as the headlines suggest, but they are still bad.
“Borrowing in December was far higher than expected and a new record for the month. However, this overshoot mainly reflected changes in the accounting treatment of student loans. Total borrowing in the financial year-to-date was still £2.7 billion lower than recently forecast by the OBR.
“The December data were also boosted by two factors that should be temporary. One was the sharp rise in spending on energy support schemes, which should fall away this year as global energy prices drop and the schemes are rolled back.
“The other was a jump in interest payable on government debt, to £17.3 billion. However, £13.7 billion of this was accounted for the RPI uplift on the principal value of inflation index-linked bonds, and therefore money that will only be paid out in dribs and drabs over many years. The amount actually paid out in December itself was more like £3.6 billion.
“What’s more, the December data were based on the change in the RPI between September and October, when RPI inflation peaked. The headline numbers for debt interest payments should therefore fall sharply this year as well.
“Nonetheless, the public finances are on the wrong path and the Treasury will argue that the Chancellor has no headroom for tax cuts anytime soon. This is not necessarily right: tax cuts that support growth and boost the supply-side performance of the economy could actually help the public finances. But both borrowing and debt are already worryingly high.”
ENDS
Notes to editors
Contact: media@iea.org.uk / 07763 365520
IEA spokespeople are available for interview and further comment.
SHARE
