Sunak says public finances are on unsustainable path

© Reuters. Britain’s Chancellor of the Exchequer Sunak outside Downing Street, in London

By David Milliken

LONDON (Reuters) – British finance minister Rishi Sunak said on Thursday that the path for the public finances set out by official forecasters on Wednesday was not a sustainable one, the closest he has come to acknowledging that taxes will need to rise.

“The forecasts that were set out yesterday show us on a path where that (borrowing and debt) continues to be at a very elevated level, so that’s not a sustainable position,” Sunak told the BBC.

Sunak declined to commit specifically to tax rises, saying any decision would need to wait for his annual budget statement due early next year.

Previously he has said that hard choices would need to be made on the public finances after the pandemic.

“Once we get through this and we have more certainty about the economic outlook, we’ll need to look at how we can make sure we have a strong set of public finances,” he added on Thursday.

Britain’s Office for Budget Responsibility forecast on Wednesday that the budget deficit would fall sharply to 7.4% of gross domestic product in the 2021/22 financial year from 19.0% this year, a record 394 billion pounds in cash terms.

The headline measure of public debt will begin to fall as a share of GDP from 2024/25.

However, a lower but less volatile measure of debt – which excludes temporary lending to commercial banks by the Bank of England – is forecast to keep rising over the next five years.

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The OBR said Britain’s government would need to find 29 billion pounds – just over 1% of GDP – to balance day-to-day spending with tax revenues by the end of the forecast period.

Record-low interest rates made the high level of debt affordable for now, but Britain was becoming more vulnerable to any unexpected rise in global interest rates, it warned.

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