London Daily

Focus on the big picture.
Thursday, Jul 10, 2025

Rishi Sunak protecting Treasury from inflation at families’ expense

Rishi Sunak protecting Treasury from inflation at families’ expense

Critics of UK chancellor’s spring statement say it prioritises debt reduction and fails to provide support to lower-income households

Rishi Sunak has battled to protect the Treasury from rising prices while allowing inflation to ravage the finances of low and middle-income households. That is the accusation levelled at the chancellor after a spring budget statement that put government debt reduction ahead of calls for extra welfare support for hard-pressed families.

Sunak’s dilemma, as inflation heads towards 8% and possibly beyond, is whether he can afford to increase the Treasury’s outlay on welfare and public services, including public sector pay.

His team believes that the Treasury needs to keep a large fund in reserve to pay higher debt costs, much of which is linked to inflation.

A proportion of the UK’s debt is held by lenders in the form of index-linked bonds. The more inflation rises, the higher the interest rate the government must pay.

Then there is the £875bn of government debt held by the Bank of England – equal to more than a third of the total – which until last year carried an interest rate of just 0.1%.

Central bank officials are attempting to limit the rise in inflation by increasing borrowing costs. Two rate rises later, and the annual interest rate stands at 0.75%, raising Sunak’s debt bill further.

Figures covering the public finances in February show inflation pushed up interest payments on government debt by more than 50% to £8.2bn, the highest February figure on record.

Yet debts costs remain at historic lows as a proportion of the government’s budget, which is a better measure of its ability to pay. In the 1980s, debt interest cost the government about 10% of annual revenues. Today that figure is below 3%, despite a debt mountain that has more than doubled in relation to national income over that time.

The offices of HM Treasury in Whitehall. UK government debt is highly sought after by international investors.


In addition, UK government debt is still highly sought after by international investors, meaning they are prepared to accept low returns over long periods. And there is little prospect of recent increases in inflation being sustained over the longer time horizons used by the Treasury to judge the nation’s financial stability.

Inflation will fall back this year and next because fuel prices are the biggest impetus for rising prices. Inflation is also kinder to the chancellor than it is to businesses or households. It increases his income from VAT. There is also a boost from wage rises that are slightly larger than forecast a year ago, which generates more income tax. Adding an estimated £21bn to his stockpile is a freeze on income tax thresholds set to last four years.

In the meantime, soaring gas prices and the higher cost of petrol and diesel will eat into business and household incomes with only limited compensation from higher incomes or government support.

In truth, much of the Treasury reserve fund is being kept back to fund tax cuts ahead of the next election, when much of it could be used to prevent more than 1.3 million people – including half a million children – from being pushed below the poverty line next year.

Newsletter

Related Articles

0:00
0:00
Close
Severe Heatwave Claims 2,300 Lives Across Europe
NVIDIA Achieves Historic Milestone as First Company Valued at $4 Trillion
Declining Beer Consumption Signals Cultural Shift in Germany
Linda Yaccarino Steps Down as CEO of X After Two Years
US Imposes New Tariffs on Brazilian Exports Amid Political Tensions
Azerbaijan and Armenia are on the brink of a historic peace deal.
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Weinstein Victim’s Lawyer Says MeToo Movement Still Strong
U.S. Enacts Sweeping Tax and Spending Legislation Amid Trade Policy Shifts
Football Mourns as Diogo Jota and Brother André Silva Laid to Rest in Portugal
Labour Expected to Withdraw Support for Special Needs Funding Model
Leaked Audio Reveals Tory Aide Defending DEI Record
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
London Stock Exchange Faces Historic Low in Initial Public Offerings
A new online platform has emerged in the United Kingdom, specifically targeting Muslim men seeking virgin brides
Trump Celebrates Independence Day with B-2 Flyover and Signs Controversial Legislation
Boris Johnson Urges Conservatives to Ignore Farage
SNP Ordered to Update Single-Sex Space Guidance Within Days
Starmer Set to Reject Calls for Wealth Taxes
Stolen Century-Old Rolls-Royce Recovered After Hotel Theft
Macron Presses Starmer to Recognise Palestinian State
Labour Delayed Palestine Action Ban Over Riot Concerns
Swinney’s Tax Comments ‘Offensive to Scots’, Say Tories
High Street Retailers to Enforce Bans on Serial Shoplifters
Music Banned by Henry VIII to Be Performed After 500 Years
Steve Coogan Says Working Class Is Being ‘Ethnically Cleansed’
Home Office Admits Uncertainty Over Visa Overstayer Numbers
JD Vance Questions Mandelson Over Reform Party’s Rising Popularity
Macron to Receive Windsor Carriage Ride in Royal Gesture
Labour Accused of ‘Hammering’ Scots During First Year in Power
BBC Head of Music Stood Down Amid Bob Vylan Controversy
Corbyn Eyes Hard-Left Challenge to Starmer’s Leadership
London Tube Trains Suspended After Major Fire Erupts Nearby
Richard Kemp: I Felt Safer in Israel Under Attack Than in the UK
Cyclist Says Police Cited Human Rights Act for Riding No-Handed
China’s Central Bank Consults European Peers on Low-Rate Strategies
AI Raises Alarms Over Long-Term Job Security
Saudi Arabia Maintains Ties with Iran Despite Israel Conflict
Musk Battles to Protect Tesla Amid Trump Policy Threats
Air France-KLM Acquires Majority Stake in Scandinavian Airlines
UK Educators Sound Alarm on Declining Child Literacy
Shein Fined €40 Million in France Over Misleading Discounts
Brazil’s Lula Visits Kirchner During Argentina House Arrest
Trump Scores Legislative Win as House Passes Tax Reform Bill
Keir Starmer Faces Criticism After Rocky First Year in Power
DJI Launches Heavy-Duty Coaxial Quadcopter with 80 kg Lift Capacity
U.S. Senate Approves Major Legislation Dubbed the 'Big Beautiful Bill'
Largest Healthcare Fraud Takedown in U.S. History Announced by DOJ
×