Budget 2021 live: ‘many to face living standards squeeze’ despite Sunak spending pledges

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IFS warns take-home pay will fall due to rising prices and taxes; Sunak announces universal credit taper reduction and fuel and alcohol duty cuts

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Rishi Sunak is also expected to unveil new fiscal rules, after suspending restrictions on government borrowing early in the pandemic.

Those rules could force the government to balance the books for day-to-day spending with income by the end of the parliament, bring down the national debt in relation to the size of the economy, or rethink its spending plans if inflation pushes up debt repayment costs.

We will not borrow to fund day-to-day spending, but will invest thoughtfully and responsibly in infrastructure right across our country in order to increase productivity and wages.

Our fiscal rules mean that public sector net investment will not average more than 3 per cent of GDP, and that if debt interest reaches 6 per cent of revenue, we will reassess our plans to keep debt under control.

Public debt is indeed higher than in recent years, but it was more than double the current level after the second world war, when the economy grew particularly strongly. The ratio of debt to GDP is not a significant number, whether 100% or any other. Economically what matters is the cost of servicing the debt, and the value of the things that government borrowing is paying for.

Due to near-zero rates, the interest payments the government makes on its debt are now at their second lowest level in 70 years, at just 6% of tax receipts. The Bank of England now owns 37% of all government gilts, and repays the profit it makes on the interest back to the Treasury. (This has saved the government as much as £100bn over the last decade.) The Bank can continue to finance government debt at low interest rates, which means that financial institutions will continue to buy UK bonds: there is no sign of demand for them falling away.

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