Rishi Sunak has some financial headroom to work with. Here’s why he probably won’t use it

There are those who would be inclined to look at the latest UK borrowing figures as a reason to look towards the strongest spirits in the drinks cabinet.

Britain’s net debt stood at £2.3 trillion at the end of Feb 2022, which amounts to 94.7 per cent of GDP, putting it at a level not seen since the early 1960s.

In February, the chancellor, Rishi Sunak, wrote £13.1bn of IOUs, the second-highest since monthly records began in 1993. While the figure was £2.4bn less than the same month last year, it was £12.8bn higher than in February 2020, just before the Covid-19 pandemic arrived and turned the world on its head.

The February number was also quite a bit worse than expectations, with the City’s consensus forecast coming in at roughly £8bn.

Plenty for the doom merchants to feast upon, a nightmare for Sunak ahead of his spring statement, and a chance for the suitcase that reportedly kept No 10’s hordes of party-goers supplied with wine during lockdown to make a reappearance, possibly full of whisky for frazzled officials in No 11?

Perhaps not. First off, it’s worth bearing in mind that these monthly figures tend to be choppy, subject to quirks that forecasters are apt to miss, and prone to later revision.

If we turn our attention to the financial year to date figure (it runs from April to April) a rather sunnier picture – for the Treasury, at least – emerges. Sunak has so far borrowed £138.4bn, still very high but down to roughly half the level of 2020 and, crucially, £25.9bn below the most recent forecast from the Office for Budgetary Responsibility (OBR).

So the picture isn’t as bad as it might seem for the chancellor. He has financial wiggle room. How much wiggle room? That rather depends on whom you choose to listen to. The estimates vary wildly. Figures of between £10bn and £50bn have been quoted in various places. It’s probably best to stick a pin somewhere in the middle of them.

Working in the chancellor’s favour is that the recovery - I won’t call it post-Covid recovery because the latter is very much still with us – has been “revenue rich” from the exchequer’s perspective.

The rapid rebound of the jobs market has boosted the supply of taxes on labour. An improved consumer economy has helped generate VAT receipts. So have those high fuel prices, by the way.

Working against Sunak, however, is the fact that borrowing is getting more expensive for him. Higher inflation and interest rates have increased the interest Britain has to pay on its debts. This was an important contributor to February’s poor numbers.

The chancellor is justifiably coming under intense pressure to act to further reduce the pressure Britons have been facing from the cost of living crisis. He should respond.

He is, however, expected to tread carefully, and not just because of the uncertain outlook created by Russia’s brutal invasion of Ukraine, and the ensuing spike in energy prices and the surge in inflation.

The Tory Party is gearing up for a two year election campaign. Unveiling giveaway budgets shortly before elections are held is a longstanding political tactic beloved by its finance ministers. Sunak wants to be able to cut taxes. Limiting the help offered now would give him more room to do that further down the line.

This is cynical and it is ugly if you consider the impact inflation is having, especially upon poorer families, which I’ve covered in an earlier column. But given this government’s record, it shouldn’t surprise anyone.