Rishi Sunak clashes with ‘big spender’ Boris Johnson

Rishi Sunak today insisted the government’s books must be balanced after Covid amid tensions with Boris Johnson over huge spending commitments. 

The Chancellor renewed his pledged to ‘get the public finances on a sustainable footing’ as ministers wrangle over how to pay for social care reforms and ‘levelling up’ policies.

Nerves over the scale of the UK’s borrowing and debt have been growing amid signs of a spike in inflation, with some Tories branding Mr Johnson a ‘very big spender’ and urging Mr Sunak to stamp his ‘authority’. 

The respected IFS think-tank warned today that the premier is making it ‘extremely difficult’ for Mr Sunak by vetoing most options for raising revenue.  

Downing Street has insisted that the ‘triple lock’ on the state pension will stay in place, even though the warping effects of furlough could mean it rises by 6 per cent this year and cost the Treasury £4billion.

No10 also says the manifesto commitment not to raise income tax, national insurance or VAT in this parliament stands – even though the respected IFS think-tank says that makes it ‘extremely difficult’ for the Chancellor to find ways of raising money.    

The Treasury has been drawing up plans for a raid on pension reliefs, although sources insist that is not under ‘active consideration’ by the Chancellor and it would spark anger from the Tory benches.  

Mr Sunak is believed to be holding out on signing off a £10billion social care plan until a source of funding is earmarked, with a meeting slated for today between him, Mr Johnson and Health Secretary Matt Hancock postponed. 

Tory former chancellor Ken Clarke warned this morning that there is a ‘big risk’ of inflation running out of control – and urged Mr Sunak to raise more revenue now to make the government less vulnerable to a resulting spike in interest payments. 

Concerns over the rebounding economy overheating and causing an inflation spike have been intensifying after the headline rate surged ahead of expectations to hit 2.1 per cent last month. 

In the US it is also at worryingly high levels, as Joe Biden pours money into stimulating the economy.  

Official figures today showed the government was in the red by £24.3billion last month, the second highest on record for the month and £18.9billion more than in May 2019 before the pandemic struck.

National debt now stands at a staggering £2.2trillion, equivalent to around 99 per cent of GDP. 

However, in a glimmer of hope the borrowing in May was down from £43.8billion a year earlier at the height of the pandemic – and crucially was below the Office for Budget Responsibility’s forecasts.

Responding to the figures, Mr Sunak reiterated his pledge to ‘get the public finances on a sustainable footing’ over the ‘medium term’.

‘That’s why at the Budget in March I set out the difficult but necessary steps we are taking to keep debt under control in the years to come,’ he added.

IFS chief Paul Johnson said in The Times that Mr Sunak would find it ‘extremely difficult’ to fund the social care reforms due to the No10 position.

‘If you’re not touching the three main levers of income tax, VAT or national insurance and you’ve already raised corporation tax your options are extremely limited,’ he said.

‘You’d need a lot of fiddling around with lots of different taxes, it feels like a big constraint. 

‘You’re really squeezing the barrel. His one possible get-out-ofjail card is that the economy does better than expected in the budget, but that’s not a long-run solution.’

Lord Clarke said inflation is a ‘big risk’ over the next few years.

He told BBC Radio 4’s Today programme: ‘Unless we actually take care, inflation is now the big risk over the next few years.

‘These are such unusual circumstances that no-one is quite sure how big the risk is, nor when the crunch will come, but it’s now time to start addressing the serious problem of the huge debts we have run up, which we had to run up – that was perfectly OK to stop the economy collapsing when Covid hit it – and try to make sure that we can tolerate a short little boomlet, with inflation going up for most of this year; we can act very promptly to control it once it’s obviously settled in.

‘And also you have got to start addressing the serious question of how do we pay for this fantastic amount of borrowing in a sensible and responsible way in order to be able to maintain fiscal discipline in future.’

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said borrowing is on track to hit £185billion in 2021-22 – £49billion less than forecast by fiscal watchdog the Office for Budget Responsibility (OBR).

But he cautioned: ‘The OBR’s judgment in March of a 3 per cent long-term hit to GDP from Covid-19 is about right, given the unprecedented exodus of foreign workers last year, the impending shake-out in the labour market when the furlough scheme ends and the huge collapse in capital expenditure.

‘Accordingly, we still think that the Government will have to stick to plans to hike corporation tax in 2023 and to increase the effective income tax rate by freezing existing thresholds, if it wants to ensure that public borrowing declines below 4 per cent of GDP in the mid-2020s.’