UK Chancellor Expected to Announce £70 Billion in New Borrowing

City experts anticipate that the Chancellor will announce plans to borrow an additional £70 billion in his upcoming Budget, primarily to cover rising debt interest and welfare expenditures. This move comes as the UK's debt pile has surpassed £3 trillion, with the monthly debt interest bill reaching a record high of £10.9 billion.

Higher inflation, partly attributed to geopolitical conflicts, has reduced the Chancellor's buffer against economic shocks to £12 billion, half the amount of his predecessor. This limited financial 'headroom' complicates adherence to fiscal rules requiring day-to-day spending to be covered by tax receipts and a falling debt-to-GDP ratio by the end of the decade.

The Office for Budget Responsibility (OBR), the government's fiscal watchdog, has been criticized for consistently underestimating borrowing needs. Analysis by the Institute for Fiscal Studies (IFS) indicates that since the OBR's inception in 2010, the average borrowing in the fifth year of forecasts has been significantly higher than initially projected, with national debt rising instead of falling.

The Chancellor is expected to adopt a "do no harm" approach, focusing on limited tax increases for banks and cost-of-living support for households and businesses. Measures may include removing VAT from energy bills and freezing fuel duties. However, potential tax hikes on banks and gambling firms are anticipated, with a windfall tax on oil companies not ruled out.

Significant spending decisions on defense, benefits, and social care are likely to be delayed. The Chancellor faces pressure to allocate an additional £1.2 billion annually for military equipment and to outline a credible plan to reach NATO's defense spending target of 3% of GDP by 2030. The Treasury and the OBR declined to comment on the projections.