Chancellor Rishi Sunak will outline plans to put the UK’s public finances on a more sustainable path at the budget next month, according to reports.
Sunak is expected to set new targets for the government to stop borrowing to fund day to day spending within three years, according to the FInancial Times.
The proportion of the government’s stock of debt to the size of the economy should start falling by 2024/25 under the fresh targets.
On its current trajectory, government spending would fit within the new plan. However, the new targets would give Sunak little wriggle room for giveaways at the budget and spending review on 27 October.
The reports come as the government hiked national insurance and dividend taxes 1.25 percentage points in a bid to raise funds to clear the swelling backlog of NHS work and tackle the social care crisis.
The plans are partly designed to offset the public finance’s greater exposure to inflation and rate hikes. In his budget speech in March, Sunak said a one percentage point increase in interest rates would cost the UK over £25bn.
Inflation recorded its largest monthly percentage point rise last month, jumping to 3.2 per cent annually in August from two per cent from July.
Some of the government’s debt is linked to the retail price index, meaning rates on government debt rise in line with the RPI.