Record UK borrowing puts Jeremy Hunt in a tax cut dilemma

theguardian.com:

In only three years since modern records began in 1946 has the government borrowed more than was required to balance the books in the latest financial year. Even taking account of inflation, £139bn is a lot of money.

Predictably enough, that was the message from Jeremy Hunt after the release of the latest data for the public finances. Heavy borrowing had been the right thing to do in the face of two global shocks – the pandemic and the war in Ukraine – but it was not something that could go on for ever, he opined.

Publicly, at least, the chancellor is keen to say that his priority is to get to grips with the UK’s national debt and that the last thing on his mind is whether he will have the room to fund pre-election tax cuts.

But the clock is ticking and even if the government waits until the last possible moment polling day is only 20 months away. Inevitably, Hunt will be looking at the state of the public finances to see what room he has for manoeuvre.

In two important respects, things look brighter than they did when Hunt took over from Kwasi Kwarteng at the Treasury six months ago. First, fears last autumn that the economy was then in the early stages of a protracted recession have proved unfounded. Nobody in government is getting carried away, but the fact that output is now going sideways rather than going backwards is helpful for the public finances.

There is no guarantee that the economy will continue to show its current resilience. The City expects the Bank of England to raise interest rates for a 12th successive time next month and there is a risk that the cumulative impact of higher borrowing costs and falling living standards will become too much to bear. But as things stand, growth will be a bit stronger in 2023