LONDON (Reuters) – British finance minister Rishi Sunak said on Thursday that record public borrowing is not forecast to fall fast enough to be sustainable, the closest he has come to acknowledging that taxes will need to rise once the coronavirus pandemic is over.
“(There are) record peacetime highs in borrowing and debt, and the forecasts that were set out yesterday show us on a path where that continues to be at a very elevated level, so that’s not a sustainable position,” Sunak told the BBC.
Sunak declined to commit specifically to tax rises, saying any decision would need to wait for his annual budget statement due early next year.
Previously he has said that hard choices would need to be made on the public finances after the pandemic, which has killed more than 55,000 people in Britain and led to the biggest collapse in economic activity in more than 300 years.
“Once we get through this and we have more certainty about the economic outlook, we’ll need to look at how we can make sure we have a strong set of public finances,” he added on Thursday.
Bank of England Governor Andrew Bailey, speaking to a BBC local radio station, said Sunak was taking the right approach by spreading the financial cost of the pandemic over many years.
Britain’s Office for Budget Responsibility forecast on Wednesday that the budget deficit would hit its highest since World War Two at 19.0% of gross domestic product this year, before falling to 7.4% in 2021/22 and then bottoming out at around 4% of GDP – above pre-pandemic levels.
Britain’s government would need to find 29 billion pounds – just over 1% of GDP – to balance day-to-day spending with tax revenues by the end of the forecast period, it said.
The headline measure of public debt will begin to fall as a share of GDP from 2024/25, but a lower, underlying measure of debt – which excludes temporary lending by the Bank of England – is forecast to keep rising.
Record-low interest rates made the high level of debt affordable, and spending on debt interest is due to fall to a record low share of public spending, despite the surge in borrowing, the OBR forecast.
But Britain was becoming more vulnerable to any unexpected rise in global interest rates, it warned.
“If those change significantly over time and move up, that would cost us more money and that’s something that would obviously be difficult,” Sunak told radio station LBC.
(Additional reporting by Kate Holton and Paul Sandle; editing by Guy Faulconbridge and Estelle Shirbon)