Rishi Sunak won't tackle debt mountain so he can keep post-Brexit promises, predicts predecessor Philip Hammond

Philip Hammond, who served as Chancellor under Theresa May, said the pandemic would have a "lasting impact on public finances" because of lower tax receipts and fewer people using railways.

And he told the Lord Public Services Committee that there would be a "scarring effect" on the economy which is likely to be unevenly distributed, with sectors like aviation likely to be "permanently damaged".

The British public sector faced a debt burden amounting to 99.4 percent of the size of the economy as of December 2020, according to figures released last week.

December was also the month with the third-highest government borrowing, at £34.1 billion, since records began in 1993 — £28.2 billion higher than in the same month of 2019.

Lord Hammond said the Government had embarked on "enormous levels of borrowing" to support the economy and stop businesses collapsing, but this had led to higher levels of debt.

And he told fellow peers: "All other things being equal, as the crisis comes to an end and the economy returns to whatever normal looks like, we would expect to see the lion's share of the deficit that is being incurred during this period of recession evaporate.

"That doesn't get rid of the debt but it does mean that the recurring deficit should be significantly lower than it is during the height of the crisis."

He added that the question was now whether the Government tries to pay back the debts incurred or just attempts to rebalance the public finances "to ensure that deficits are of a manageable proportion in the future".

The Conservative, who voted to remain in the European Union in the 2016 referendum, said: "If a government does the former, it will imply significant increases in taxation and significant reductions in public spending for some considerable period of time.

"If a government does the latter, I suspect that the impact will be relatively modest, in terms of the need to tighten public spending and the need to increase taxation.

"Although you didn't ask me this question, I will volunteer a guess. This government strikes me as a government which has high ambitions for public spending and has positioned itself with a post-Brexit narrative that will make it very painful to be seen as a high tax government.

"So I would expect that it is quite likely that the government will avoid the challenge of reducing the incurred debt and more focus instead on trying to bring the deficit back under control once the crisis is behind us."

Recent data from the Office for National Statistics (ONS) has fueled speculation — not disavowed by the Treasury — that taxes would rise in the March budget, provided the vaccination program goes according to plan.

“Once our economy begins to recover, we should look to return the public finances to a more sustainable footing,” said North Yorkshire MP Mr Sunak in a statement commenting on the debt.