Rishi resists calls to axe NI rise as borrowing hits a record high
RISHI Sunak is determined not to ditch the planned rise in National Insurance next month – so that UK debt doesn’t spiral out of control.
The Chancellor said the Treasury’s goal was to get the deficit in check so that future generations aren’t “burdened”.
He spoke as it was revealed that national debt ballooned to a record high last month.
Official figures yesterday showed the Government borrowed another £16.8billion last month.
Worryingly, interest on the UK’s £2trillion debt mountain cost a staggering £8.1billion in December.
It means the Government has borrowed £146.8billion so far this financial year. And it is enough for the Chancellor to resist calls to axe the NI rise.
Senior ministers are reportedly keen to delay the rise they previously approved, but No10 insists the Cabinet stands behind the decision.
There is also mounting pressure from Tory backbenchers and economists to postpone or scrap the NI raid amid the cost of living crisis.
The 1.25 per cent NI rise comes into force in April, the same month energy costs will rocket and inflation is expected to near seven per cent.
The money that the Treasury forecasts the extra National Insurance contributions will provide has been earmarked to clear the NHS backlog and then to fund social care improvements.
Ex-Brexit Secretary David Davis became the latest Conservative backbencher to call for the levy to be scrapped this week.
He said it would take away about 10 per cent of disposable income for “ordinary families”.
The former Cabinet minister, who last week called for Boris Johnson to quit, said the levy probably would not raise “anything like” the £12billion a year forecast, and could even have a negative effect by slowing the growth of the economy.
But Mr Sunak said: “Risks to the public finances, including from inflation, make it even more important that we avoid burdening future generations with high debt repayments. Our fiscal rules mean we will reduce our debt burden while continuing to invest in the future of the UK.”
Experts have warned that interest payments on public debt will rise further as the Consumer Price Index (CPI) inflation is set to increase from 5.4 per cent to well over six per cent in the spring.
Higher interest rates also affect payments on government borrowing, with the Office for Budget Responsibility previously warning that even a one percentage point rise in rates would cost the UK an extra £23billion in interest payments on its debt.
Rates were increased to 0.25 per cent last month and are expected to rise again, possibly as soon as next
month, as the Bank of England moves to cool rampant inflation.
Samuel Tombs, at Pantheon Macroeconomics consultancy, said: “Surging inflation is making the Chancellor’s task of returning the public finances to a sustainable footing much more difficult.
“Despite this, Mr Sunak probably still will intervene in the Spring Statement on March 23, if not sooner, to alleviate the cost of living crisis set to engulf households in April.”
Julian Jessop, of the Institute of Economic Affairs, said the latest data provides “fiscal room” to ditch the NI hike in April.
He said: “The economy has recovered more quickly than expected, creating a ‘growth dividend’ for the Treasury. The government may still need to find more money later to fund a long-term increase in spending on health and social care.
“But the National Insurance hike in 2022-23 was intended to help with the one-off costs of fixing the backlog of NHS work caused by the pandemic. It is therefore entirely credible to use the growth dividend to pay these costs, rather than adding even more to the tax burden by raising NI contributions.”
Hoa Duong, an economist at accountancy giant PwC, said the extra cash from National Insurance is too much for the Chancellor to ignore, given the scale of borrowing over the pandemic.
She said: “Increasing National Insurance would potentially be a quick fix. However, it would be a significant extra burden for households as it would exacerbate the current rising cost of living.
“Despite this, we anticipate that the question is not if, but when, National Insurance will rise – with the challenge being to time any increase without further squeezing household budgets and impacting economic growth.”