High UK debt spurs talk of tax rises

The British public sector faced a debt burden amounting to 99.4 percent of the size of the economy as of December 2020, according to figures released on Friday.

December was also the month with the third-highest government borrowing, at £34.1 billion, since records began in 1993 — £28.2 billion higher than in the same month of 2019.

The figures show the country’s strain under the winter wave of the pandemic, which has seen more deaths and hospitalizations than in early 2020 when the outbreak began.

The data from the Office for National Statistics (ONS) also fueled speculation — not disavowed by the Treasury — that taxes would rise in the March budget, provided the vaccination program goes according to plan.

“Once our economy begins to recover, we should look to return the public finances to a more sustainable footing,” said Chancellor Rishi Sunak in a statement commenting on the debt.

Sunak was considering a corporation tax hike to as much as 23 percent from the current 19 percent, according to the Financial Times.  A Treasury spokesman did not respond to requests for comment.

But experts pointed to weak retail sales data, also out Friday, to push back against tax rises, arguing the economy will still be too fragile in the coming months.

Despite the holiday season, retail sales grew in the country by only 0.3 percent in December, compared with expectations in the financial sector that they would jump by around 1.4 percent. Many shops were shut by tougher coronavirus measures on December 20, rendering the economy unable to fully recoup losses made in the November lockdown.

“Overall, these data highlight how the economy still needs the government’s financial support. The Chancellor should ensure that is the main focus of his Budget on 3rd March and not a desire to reduce the budget deficit by raising taxes,” said Paul Dales, chief U.K. economist at consultancy Capital Economics, in a note discussing the ONS release.

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