Jeremy Hunt dampens tax cut hopes as borrowing hits record high

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Chancellor Jeremy Hunt has played down Tory hopes of tax cuts in his upcoming budget as the latest government figures showed state borrowing reached another record high last month.

Mr Hunt vowed to stick to the “difficult decisions” needed to balance the books, as the rising cost of energy support schemes and rising debt interest pushed borrowing to a December record.

The chancellor is said to be preparing to disappoint disappointed Tory MPs who backed the truce government’s plan for radical tax cuts in March with a “reduced” budget.

The Office for National Statistics (ONS) said government borrowing reached a higher-than-expected £27.4bn last month, a jump of £16.7bn year-on-year and marking the highest monthly figure since records began.

Official figures show energy support schemes have increased costs by almost £7bn, with the ONS estimating the government spent £5bn last month capping annual bills on the Energy Price Guarantee, as well £1.9bn was paid for electricity. Bill Support Payment.

Mr Hunt said the government was “making difficult decisions to reduce debt”, and added: “Right now we are helping millions of families with the cost of living but we must also ensure that our debt levels appropriate for future generations.”

The Chancellor said: “We have already taken some tough decisions to reduce debt, and it is vital that we stick to this plan so that we can halve inflation this year and get growth going again.”

Interest payments on government debt rose by £8.7bn last month to £17.3bn year-on-year as a result of sky-high inflation – the highest December on record and the second biggest in any single month.

In the financial year to December, the government’s debt interest bill reached £87.8 billion and the Office for Budget Responsibility (OBR), the UK’s fiscal watchdog, estimates it will rise to £115.7 billion by the end of the full year in March .

The government is paying a heavy price for the Energy Price Guarantee scheme, introduced to help households cope with painful gas and electricity bills, with annual bills capped at £2,500.

Support will become less generous, with the cap rising to £3,000 in April. Similar help is being offered to businesses, but this too will be drastically cut from the end of March.

The government is also paying £400 to each family over six months to help with the bills. Its cost is exacerbating the impact of inflation, which has risen to a more than 40-year high due to the energy and cost of living crisis, with RPI accounting for a large share of public sector net debt.

The ONS said public sector debt is set to reach £2.5trn at the end of December 2022, or about 99.5 per cent of gross domestic product (GDP), a level last seen in the early 1960s.

But Samuel Tombs at Pantheon Macroeconomics said the pressure on the country’s ailing public finances should ease, with falling energy bill prices guaranteeing its energy bill is less expensive.

It comes as reports claim the government is considering raising the retirement age from 67 to 68, which is due in 2046, before the end of the 2030s.

Treasury officials are said to want a change as early as 2035 Sun, But Work and Pensions Secretary Mel Stride is reportedly pushing for 2042 because life expectancy hasn’t increased.

Mr Hunt and Rishi Sunak were warned they were “playing with fire” if the change came before the next general election, although it would raise billions for the country’s struggling finances.

Jeremy Hunt dampens tax cut hopes as borrowing hits record high

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