Julian Jessop

Of course we can afford to cut taxes

What the debt doom-mongers get wrong

The latest data on the UK’s public finances have provided more ammunition for those arguing that the government cannot afford to cut taxes. However, the economic reality is far more nuanced – especially when it comes to interest payments.

The bad news is that the government borrowed another £14 billion in May, £3.7 billion more than forecast by the Office for Budget Responsibility (OBR). This reflected both lower-than-expected tax receipts, despite the increase in National Insurance contributions, and higher spending, including £7.6 billion in debt interest costs.

This means that the government has already borrowed £35.9 billion in the first two months of the new fiscal year, or £6.4 billion more than forecast. To rub it in, these figures will get worse before they get better. In particular, debt interest costs will almost certainly top £20 billion in June alone, because the inflation uplift on index-linked government bonds (gilts) will be based on the jump in the Retail Price Index (RPI) between March and April.

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