London Daily

Focus on the big picture.
Thursday, Jul 31, 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
Former Judge Charged After Drunk Driving Crash Kills Comedian in Brazil
Jeff Bezos hasn’t paid a dollar in taxes for decades. He makes billions and pays $0 in taxes, LEGALLY
China Increases Use of Exit Bans Amid Rising U.S. Tensions
IMF Upgrades Global Growth Forecast as Weaker Dollar Supports Outlook
Procter & Gamble to Raise U.S. Prices to Offset One‑Billion‑Dollar Tariff Cost
House Republicans Move to Defund OECD Over Global Tax Dispute
Botswana Seeks Controlling Stake in De Beers as Anglo American Prepares Exit
Trump Administration Proposes Repeal of Obama‑Era Endangerment Finding, Dismantling Regulatory Basis for CO₂ Emissions Limits
France Opens Criminal Investigation into X Over Algorithm Manipulation Allegations
A family has been arrested in the UK for displaying the British flag
Mel Gibson refuses to work with Robert De Niro, saying, "Keep that woke clown away from me."
Trump Steamrolls EU in Landmark Trade Win: US–EU Trade Deal Imposes 15% Tariff on European Imports
ChatGPT CEO Sam Altman says people share personal info with ChatGPT but don’t know chats can be used as court evidence in legal cases.
The British propaganda channel BBC News lies again.
Deputy attorney general's second day of meeting with Ghislaine Maxwell has concluded
Controversial March in Switzerland Features Men Dressed in Nazi Uniforms
Politics is a good business: Barack Obama’s Reported Net Worth Growth, 1990–2025
Thai Civilian Death Toll Rises to 12 in Cambodian Cross-Border Attacks
TSUNAMI: Trump Just Crossed the Rubicon—And There’s No Turning Back
Over 120 Criminal Cases Dismissed in Boston Amid Public Defender Shortage
UN's Top Court Declares Environmental Protection a Legal Obligation Under International Law
"Crazy Thing": OpenAI's Sam Altman Warns Of AI Voice Fraud Crisis In Banking
The Podcaster Who Accidentally Revealed He Earns Over $10 Million a Year
Trump Announces $550 Billion Japanese Investment and New Trade Agreements with Indonesia and the Philippines
US Treasury Secretary Calls for Institutional Review of Federal Reserve Amid AI‑Driven Growth Expectations
UK Government Considers Dropping Demand for Apple Encryption Backdoor
Severe Flooding in South Korea Claims Lives Amid Ongoing Rescue Operations
Japanese Man Discovers Family Connection Through DNA Testing After Decades of Separation
Russia Signals Openness to Ukraine Peace Talks Amid Escalating Drone Warfare
Switzerland Implements Ban on Mammography Screening
Japanese Prime Minister Vows to Stay After Coalition Loses Upper House Majority
Pogacar Extends Dominance with Stage Fifteen Triumph at Tour de France
CEO Resigns Amid Controversy Over Relationship with HR Executive
Man Dies After Being Pulled Into MRI Machine Due to Metal Chain in New York Clinic
NVIDIA Achieves $4 Trillion Valuation Amid AI Demand
US Revokes Visas of Brazilian Corrupted Judges Amid Fake Bolsonaro Investigation
U.S. Congress Approves Rescissions Act Cutting Federal Funding for NPR and PBS
North Korea Restricts Foreign Tourist Access to New Seaside Resort
Brazil's Supreme Court Imposes Radical Restrictions on Former President Bolsonaro
Centrist Criticism of von der Leyen Resurfaces as she Survives EU Confidence Vote
Judge Criticizes DOJ Over Secrecy in Dropping Charges Against Gang Leader
Apple Closes $16.5 Billion Tax Dispute With Ireland
Von der Leyen Faces Setback Over €2 Trillion EU Budget Proposal
UK and Germany Collaborate on Global Military Equipment Sales
Trump Plans Over 10% Tariffs on African and Caribbean Nations
Flying Taxi CEO Reclaims Billionaire Status After Stock Surge
Epstein Files Deepen Republican Party Divide
Zuckerberg Faces $8 Billion Privacy Lawsuit From Meta Shareholders
FIFA Pressured to Rethink World Cup Calendar Due to Climate Change
SpaceX Nears $400 Billion Valuation With New Share Sale
×