Jeremy Hunt will rely more on savers this year to plug a gaping hole in the public finances as he taps households for more cash even as soaring tax revenues lower public borrowing.
The Chancellor will use the Autumn Statement to increase the amount he expects National Savings & Investments (NS&I) to raise for the Treasury after higher interest rates prompted a surge in deposits.
NS&I is 100pc backed by the Treasury, which means when customers invest in its products they are effectively funding the Government.
Mr Hunt has already raised NS&I’s net funding target once this year from £6bn to £7.5bn, which the savings provider achieves by increasing interest rates on existing products such as premium bonds, or launching new deals.
NS&I pulled a market-leading bond from sale in October after just five weeks amid a surge in demand from households willing to lock their money away for higher returns.
The one-year bond paying 6.2pc was its highest interest rate on offer since 2008 and received around a quarter of a million applications.
Bank of England data show £7.7bn flowed into NS&I in September alone, as savers rushed to lock in the market-leading rate.
This is the second largest inflow into NS&I products since the 1980s. NS&I saw total net inflows of £10bn between April and September, according to Threadneedle Street data.
Economists at Nomura believe NS&I’s funding target could be raised by at least £5bn to £12.7bn.
“Huge inflows into NS&I may reduce the need for gilts,” said George Buckley, chief UK economist at Nomura.
“We see gilt issuance being revised down for the current tax year by around £20bn from £237.8bn to around £218bn due to better outturns and more National Savings.”
NS&I has also increased its Premium Bond prize fund rate eight times in just over a year, boosting their appeal to savers with the odds of winning £1m at its highest in decades.
Tapping savers for cash has been attractive for a government that is still seeking to issue massive amounts of debt this year.
While inflation has fallen sharply since March, and currently stands at 4.6pc, investors continue to be nervous about how much debt the Government needs to raise at a time when the Bank of England is selling bonds back to the market and demand from pension funds for UK debt has waned.
The Treasury and NS&I declined to comment.
An expected reduction in UK gilt sales is expected to be announced by Mr Hunt alongside a series of modest tax cuts designed to boost investment and raise growth.
