Chancellor in ‘better position’ to ease cost of living crisis as government debt lower than expected

Government borrowing is now £26bn lower than expected for the financial year so far, putting the chancellor in a “better” position to ease the cost of living crisis.

Borrowing for the first 11 months of the 2021-2022 fiscal year was £138.4bn, less than half of the record £290.9bn from the same period the previous year.

The figure is on course to come in below the £183bn forecast by the government’s Office for Budget Responsibility in October, largely due to stronger-than-expected tax revenue.

James Smith, research director at the Resolution Foundation, said: “The chancellor will approach the UK’s latest crisis – the tightest income squeeze in generations, exacerbated by the Russian invasion of Ukraine – with the public finances in better shape than expected, increasing the chance of significant policy action to support families through the tough year ahead.”

He said the UK is experiencing a “revenue-rich recovery with tax receipts £37bn higher than forecast”.

He continued: “The chancellor should take this opportunity to provide emergency income support to families through this cost of living crisis, starting with a £9bn boost to working-age and pensioner benefits.”

Chancellor Rishi Sunak hinted that he was preparing to support families with the cost of living crisis, saying: “Look at our record, we have supported people – and our fiscal rules mean we have helped households while also investing in the economy for the longer term.”

But he also seemed to downplay the improved outlook amid concerns that soaring inflation is pushing up the cost of servicing government debt.

“The ongoing uncertainty caused by global shocks means it’s more important than ever to take a responsible approach to the public finances,” he said.

“With inflation and interest rates still on the rise, it’s crucial that we don’t allow debt to spiral and burden future generations with further debt.”

Interest payments on government debt hit a record £8.2bn for the month of February because of surging inflation.

The cost of servicing the country’s £2trn+ debt pile was £2.8bn (almost 53%) higher than in February 2021 – making up 11% of government spending.

The budget deficit stood at £13.1bn last month – £5bn above the forecast and the second-highest figure for the month since records began in 1993.

But this overshoot was largely cancelled out by a £4.2bn upward revision to January’s budget surplus.

The amount was £2.4bn lower than the same month last year – but still £12.8bn more than in February 2020, before the pandemic.