The Autumn Statement will address the risk of a future “black hole” in the UK's finances.
From nurses' salaries to school supplies and state pensions, over £1 trillion will be spent on public services and investment this year.
But this is not the infamous "black hole", which refers to a future sum shaped by the government's own target.The government can raise enough money to fund its spending by borrowing on financial markets via bonds, which are essentially IOUs. To borrow at relatively low rates, it needs to persuade investors that it's a good bet.
It's the extra money the government needs to find to meet that self-imposed target in the future that's been labelled the black hole.Covid-related support packages pushed government borrowing to its highest level since the end of World War Two. Now the cost of help for energy bills and tax cuts has raised fresh concerns about debt.
As it is, higher interest rates and inflation are already causing the government's interest on borrowing to balloon - we were already set to spend twice as much on debt interest as on defence. Why can't a government just print money to fund its plans? It may be tempting, but particularly in a time of rapid inflation, that could just put more pressure on prices.The magic bullet all governments crave is faster growth. That brings in more money through taxes, reduces spending on benefits and would shrink the debt compared with the size of the UK's income. But with warnings of a prolonged recession, it would be unrealistic to gamble on that.
What about tax rises? Freezing allowances and bands for income tax or making changes to inheritance or capital gains tax would pull tens of billions of pounds out of the economy at a time when activities are already set to slump. It would be a risky strategy, as it could prolong the downturn.
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