Boris Johnson announced this week, a huge £24 billion war chest to transform the armed forces and become "Europe's naval superpower once again".
"We will build the largest navy in Europe" said the Prime Minister, "paid for by a public sector pay freeze and a raid on pensions", said the Chancellor of the Exchequer.
Rishi Sunak has been considering an array of options for raising taxes to ease the growing deficit. The latest figures, confirm borrowing in the financial year to October was £276 billion. Figures published by the OBR suggest borrowing could increase to £372 billion in the current financial year. Some analysts now expect total borrowing to be over £400 billion.
The level of total debt increased to £2.1 trillion at the end of the month. Add in debt from the Public Sector Bank Holdings and the debt increases to £2.4 trillion. Toss in a few additional public sector liabilities and total public sector exposure, increases to £2.5 trillion. So how to pay for it all?
The Chancellor has pledged to bring soaring government borrowing under control. The Treasury is considering a range of options to plot a route out of the economic devastation caused by Covid, according to Sophy Ridge, writing for Sky News today. Rishi Sunak is due to make an appearance on Sophy Ridge Live this Sunday, ahead of next week's spending review.
The route out of the "devastation" is growth not tax rises. Growth will follow as the economy recovers from set back. Retail sales, excluding fuel were up by almost 8% in volume terms in October. Household goods increased by 16%, DIY and Garden Centre sales increased by 30%. Carpet sales were up by over 50%. Online sales increased by 60%, accounting for 29% of all retail transactions.
The Treasury always has a "bucket list" of possible tax increases. The secret is to keep them in the bucket under a pile of sand. Remember the pasty tax and the caravan tax? Is this really the time to impose a pay freeze on public sector workers or consider a raid on pension tax relief for higher earners?
If radical measures are required, VAT on mortgage payments could raise an additional £12 billion each year. A window tax, always an old favorite, could yield and additional £10 billion that's for sure. Young people under 25 could pay for the vaccines of the over 60's. That would be another great cash generator.
Sunak's messaging has drifted off course since Allegra Stratton left the camp. The UK's favorite cabinet member is no longer favorite to be the next Prime Minister. Worse still, Andy Burnham is the new nation's heart throb according to the "Loose Women" panel.
"Loose women swoon over sex symbol Andy Burnham" the headlines in the Manchester Evening News this month. "He makes my heart go funny" said Panelist Nadia Sawalha.
We are looking for a great performance by the Chancellor in the spending review next week. Too much talk of tax rises and many more hearts will go funny ...
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for updates on the UK and World Economy.
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