Liz Truss was facing growing questions over her tax-cutting economic strategy on Wednesday as the Government’s debt interest bill soared to a record £8.2 billion in August, according to official figures.
The Office for National Statistics said central government debt interest payable was £8.2 billion in August 2022, £1.5 billion more than in August 2021 and the highest August figure since monthly records began in April 1997.
It stressed that the volatility in interest payable was largely due to sky-rocketing inflation on index-linked gilts.
Ms Truss is gambling with her dash for economic growth that the markets will not go wobbly on Britain if she is seen as borrowing too much.
Responding to the latest figures, Chancellor Kwasi Kwarteng said: “Our priority is to grow the economy and improve living standards for everyone - with strong economic growth and sustainable public finances going hand in hand.
“As Chancellor, I have pledged to get debt down in the medium term. However, in the face of a major economic shock, it is absolutely right that the government takes action now to help families and businesses, just as we did during the pandemic.”
The ONS figures also showed that public sector net debt, excluding public sector banks, was a staggering £2,427.5 billion at the end of August 2022, or around 96.6 per cent of gross domestic product (GDP).
This was an increase of £195.2 billion or 1.9 percentage points of GDP compared with August 2021.
Ms Truss has responded to the cost-of-living crisis with a massive package of support to keep down the cost of annual energy bills, for the typical household at no more than £2,500 for two years.
Business Secretary Jacob Rees-Mogg was on Wednesday announcing a package of similar support for firms, though it will only run initially for six months before it is reviewed and possibly scaled down to only some sectors like retail and hospitality.
However, the energy support plans are expected to cost at least £100 billion, which the Government intends to fund by piling up debt.
It is also proposing a wave of tax cuts, including reversing the National Insurance Contributions hike, ditching the planned increase in Corporation Tax from 19 per cent to 25 per cent next year, and possibly cutting Stamp Duty, VAT and Income Tax.
Opposition MPs and some economists have criticised the plans as risking Britain’s fiscal reputation, loading the cost of dealing with today’s crises on future generations, and threatening more cutbacks in public services.
Ms Truss argues that boosting economic growth, with less focus on redistribution, is key to restoring the UK’s prospects, including by generating more funding for public services.
Her Government is also considering lifting the cap on bankers’ bonuses, a move which could be announced in a mini-Budget on Friday.
However, Government minister Gillian Keegan insisted on LBC Radio: “You can’t describe what we are doing as trickle down economics.”
The ONS figures also showed Government borrowing hit £11.8 billion in August.
It said that borrowing in August was £2.6 billion below levels from the same month last year, but represented a £6.5 billion surge from pre-pandemic levels in 2019, when it stood at £5.3 billion.
Government spending remained largely unchanged at £73.2 billion last month compared with a year earlier, despite a 22.1 per cent jump in interest payments on public debt to £8.2 billion amid rocketing inflation.
