Jeremy Hunt told Andrew Marr on LBC that the high interest rate the government pays on its debt is «making life extremely difficult» 39; Photo: Zara Farrar/HM Treasury
Jeremy Hunt said tax cuts ahead of the November autumn statement were “virtually impossible” and warned he had difficult decisions to make.
The Chancellor said “ there is no solution.» extra headroom» for tax cuts due to the need to prioritize a commitment to halve inflation this year to around 5.3 percent.
The Bank of England decided not to raise interest rates on Thursday, ending a run of 14 consecutive hikes and raising the possibility they may have peaked.
The decision to keep rates at 5.25 percent means that The amount of interest the government must pay on its debt will be lower than previously forecast, raising the possibility that the Treasury will have more money to spend on tax cuts.
However, interest rates are still much higher than the Office for Budget Responsibility (OBR) expected when the Budget was set in March and will remain higher, meaning interest payments on the national debt will remain high.
G- Mr Hunt told LBC's Tonight with Andrew Marr that high interest payments on his debt left him with little room to give away gifts.
“We are finally starting to win the battle.”
«The plan is working,» says Chancellor Jeremy Hunt @AndrewMarr9 as interest rates remain at 5.25%, but claims tax cuts remain «virtually impossible». pic.twitter.com/grw7usYBt9
— LBC (@LBC) September 21, 2023
He said: “If you look at what we have to pay on our long-term debt, it's higher now than it was at the Spring Budget.
“I wish this wasn't the case, it makes life extremely difficult, makes tax cuts virtually impossible, and means I'll have to make another set of frankly very difficult decisions.
“All I would say is: If we really want to bring down the cost of long-term debt, then we need to really stick to this plan to lower inflation and lower interest rates.
“I don't know when that will happen. happen. But, alas, I don’t think this will happen before the autumn statement on November 22.”
On Thursday it turned out that government borrowing is now much lower than predicted in March.
p>Borrowing this financial year — £69.6bn — is £11.4bn less than the OBR had forecast, suggesting Hunt does have more room to cut taxes.
Liz Truss , a former prime minister, is among the right-wing Conservatives calling on the government to cut taxes ahead of the autumn statement.
Planet Normal podcast episode 166 with Liz Truss
The new figures come amid reports the Tories are considering make a promise to cut costs. inheritance tax in their election manifesto.
Mr Hunt also raised fresh doubts over the future of the controversial HS2 rail line, saying taxpayers could not be left on the hook for infrastructure projects that cost billions more than expected.
Asked whether he could commit to the Manchester section of the high-speed line being built, he said: “I'm not going to comment on the discussions that are going on at the moment because, as Chancellor, you expect me to negotiate with the Prime Minister. minister when major infrastructure projects fail. in their cost.
“And that's what we're faced with with HS2… I understand, but they [Red Wall MPs] will also be concerned if we have an infrastructure project whose costs are completely out of pocket out of control.
“We have not made any decisions on this matter. We are considering all options. But we need to find a way to deliver infrastructure projects that doesn't cost taxpayers billions and billions of pounds.»
The comments will fuel speculation that the future of the HS2 line will be Rishi Sunak's next policy intervention, a day after he scrapped many of his zero-emissions policies.
The Prime Minister vowed to be honest on Wednesday with people about the huge cost of the policies, saying the government budget cannot afford them all.
In January, he announced that halving inflation by the end of 2023 was one of his five priorities.
The Bank of England's 14 rate hikes between December 2021 and last month have begun to bring inflation down, according to Andrew Bailey, Governor of the Bank.
“Inflation has fallen significantly in recent months and we think it will continue to fall. «, — he said.
“This is good news. But there is no room for complacency.”
He suggested further rate hikes if inflation does not continue to fall to the bank's 2 percent target.
Interest rate 2209 5.25
Inflation slowed to 6.7 percent last month, down from last October's high of 11.1 percent.
High inflation has brought the Chancellor extra tax revenue, but higher borrowing costs have also increased government spending on the £2.5 trillion national debt.
The Treasury borrowed a further £11.6 billion last month, according to the Treasury. Office for National Statistics — £3.5 billion more than in the same month in 2022 as spending rose faster than income.
The government has borrowed £69.6 billion this financial year. That's £19.3 billion more than he borrowed in the same period last year, but given it's less than the OBR had predicted, there's hope the Chancellor might have a little more breathing room.
However, Karl Emmerson, deputy director of the Institute for Fiscal Studies (IFS), warned that only small or temporary tax cuts may be warranted given the pressures facing the government budget.
Public finances improve compared to OBR forecasts «It really can't be used to pay for permanent tax cuts of any size,» he said.
Even if borrowing comes in below OBR forecasts, the figures are still likely to be worse than the financial watchdog had predicted back in 2022.
The Chancellor only «came within a hair's breadth» of his target of getting debt falling, Mr Emmerson said.
'A big problem'
Paul Johnson, director of the IFS, said that while borrowing levels were due to fall, stockpiling the national debt remained a «big problem» after the pandemic.
He told BBC Radio 4 that while both Labor and the Conservatives were committed to reducing the national debt, which is at its highest level since the 1960s, it will prove to be a difficult task.
He said, «It's difficult.» for several reasons: one of them is that we are paying a lot of interest on debt, more than we have paid in the last few generations. We're already raising taxes, and it's not enough to offset the rising debt.
“And the third problem is that this is happening despite the fact that the spending plans set out in the Budget are very tough indeed.”
Philip Shaw, an economist at Investec, said that it will eventually be possible to find room for some tax cuts.
«Mr Hunt will be looking to bolster his fiscal credibility at the November autumn statement and refrain from loosening the purse strings,» Mr Shaw said.
“However, unless we see a significant turn for the worse on government borrowing, we feel there will be some tax cuts in next spring's Budget, even if the Chancellor has to dig deep into the matter. on the back of the sofa to find money for this.”
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