Borrowing windfall increases pressure to delay April increase in national insurance

January 26, 2022

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Tory pressure to delay April’s rise in national insurance has intensified as official figures showed government finances were in a healthier state than expected.

Borrowing was £13 billion lower than forecast, according to the Office for National Statistics. MPs and right-leaning think tanks said this “growth dividend” was almost exactly the same as the sum to be raised by the new health and social care levy and should be used to cancel the looming tax rise.

But Rishi Sunak, the chancellor, pointed to surging interest payments to insist the government could not afford to relax, while other experts urged him to use the money for more targeted relief for the rising cost of living.

Tory backbenchers are increasingly nervous about the 1.25 percentage point rise to both employees’ and employers’ national insurance due in April to fund dealing with the NHS backlog and capping the cost of social care. They fear voters will punish the party as a tax increase coincides with a big rise in energy bills and rising inflation.

Downing Street yesterday said that there were “no plans” for a delay, but Boris Johnson is being heavily lobbied on the issue by MPs whom he is trying to convince to back his beleaguered leadership.

Yesterday Office for National Statistics figures showed the government borrowed £16.8 billion in December, the fourth highest total for the month since records began. Public sector net borrowing was estimated at £146.8 billion between April and December last year, the second highest on record after 2020. However, the sum was £12.9 billion less than predicted by the Office for Budget Responsibility (OBR), thanks to higher than expected tax receipts.

John Redwood, the former cabinet minister, said that the “massive surge in tax revenues this year means government borrowing [was] way below budget forecasts”, asking “why do they think they need a tax rise?”

Julian Jessop of the Institute of Economic Affairs, a free market think tank, said: “The UK government borrowed nearly £13 billion less than the OBR had forecast. This provides the ‘fiscal room’ to ditch the hike in national insurance contributions planned for April, which would have raised about £12 billion.”

He said while the government would need to raise funds to pay for health and social care long term, it was at present “entirely credible to use the growth dividend to pay these costs, rather than adding even more to the tax burden”.

Greg Smith, Conservative MP for Buckingham, said that “we need to U-turn on the national insurance increase” and argued for cutting spending elsewhere to pay for it. “A fiscal conservative like me will struggle with the concept of just borrowing our way out of it,” he said. “It’s unambiguous that dealing with the NHS backlog and doing something on social care are absolutely priorities, but that means something else has got to give.”

James Smith of the Resolution Foundation think tank said that the £13 billion “fiscal room for manoeuvre makes it inevitable that the chancellor will set out a plan to deal with the cost-of-living crunch. A targeted package to limit the rise in energy bills is the top priority.”

Sunak pointed to interest payments of £8.1 billion in December, three times the figure for the same month a year earlier as a result of rises in inflation, with total interest payments £21 billion higher last year than the year before.