It is hardly surprising that Rishi Sunak is uncomfortable about the amount of money the government is borrowing. No chancellor would be relaxed about presiding over a budget deficit that has already hit £270bn in the first nine months of the current financial year and is on course to hit £400bn – or about 20% of national output – by March. There have been years when the UK has borrowed as much as it will in 2020-21, but only in wartime. In peacetime, what has happened since the start of the Covid-19 pandemic is unprecedented. Sunak’s problem is that there is not much he can do about the government’s spiralling deficit – or at least not without hindering the economy’s chances of recovery once curbs on activity are eased. When it comes to deciding when and how restrictions will be eased the chancellor will be just one – albeit important – voice around the cabinet table. All the signs so far suggest that the government will be much more cautious about opening up the economy than it was last year after the first wave of the pandemic. That clearly has consequences. As the latest Office for National Statistics figures show, a tightening of the rules as December wore on resulted in a less than bumper Christmas for retailers: sales volumes rose by only 0.3% after a 4.1% drop in November. And, with the enforced closure of non-essential retail stores, the January figures are likely to be even worse. A breakdown of the public finances data shows that the big change over the past year has been the increase in public spending rather than the fall in tax revenue. The budget deficit was £28bn higher in December than it was in December 2019, of which £26bn was the result of rising central government spending. The current indefinite closure of large chunks of the economy means that the bill for the furlough scheme – just under £5bn in December – will rise.
Budget day is 3 March but Sunak will have to decide what is in his package of measures by the middle of next month, so it can be costed by the independent Office for Budget Responsibility. By then it is unlikely that many – or perhaps any – of the lockdown restrictions will have been lifted, so it would be a colossal gamble to announce an immediate withdrawal of support, no matter how uncomfortable the size of the deficit makes him feel. An alternative – and much less risky – approach would be to announce plans to reduce the deficit on 3 March but delay the actual measures until 2022. Sunak would not be the first chancellor to heed the words of Saint Augustine: Lord make me chaste, but not yet.