Chancellor John Healey's first Budget, due in one week, is set against a backdrop of rising inflation and record national debt, according to a new analysis.
September's inflation figure landed at 3.5%, up from 3.1% in August. That is higher than expected and will make life harder for households as food, fuel and energy costs keep climbing. In a further blow, it could force the Bank of England to hike interest rates in November, driving up mortgage costs and slowing the economy.
Record Borrowing and Debt
In September, the government borrowed another £24.5 billion, more than expected and the second-highest September figure on record. It was the same in August, July, and June, indicating Labour has lost control of spending.
Public sector net debt exceeded £3 trillion for the first time in history. It took 300 years for the national debt to hit £1 trillion in 2010. The next trillion took just 10 years, and the latest only six. The national debt is on course to hit £4 trillion within the next decade.
Fiscal Headroom Squeezed
Rachel Reeves left Healey fiscal headroom of around £24 billion, which is wafer-thin against annual government spending of £1.3 trillion. Healey already has a £35 billion black hole in his Budget plans, according to the Institute for Fiscal Studies. Now it is even deeper and wider.
He daren't borrow more, and tax bills have already rocketed. Healey is stuck.
Taxes Set to Rise
Healey will have to rip up his sums again and find a new way to plug the fiscal hole. There is no chance he will do it by cutting the ever-expanding welfare bill. Andy Burnham will not allow it, having seen what Labour backbenchers did to Keir Starmer when he tried. The Prime Minister would rather cut the military than social security, even as the threat from Russia grows.
Taxes will have to rise. Yesterday, Healey ruled out hiking capital gains tax, but that only means the money will have to come from somewhere else. Next Wednesday could be another tax and spend bloodbath, Labour's third in a row.
