UK government borrowing exceeds expectations ahead of crucial Budget
UK government borrowing has surpassed forecasts for October, with rising benefits and public sector wages contributing to increased pressures on public finances ahead of Rachel Reeves’ Budget next Wednesday, reports BritPanorama.
The Office for National Statistics has disclosed that public sector net borrowing reached £17.4 billion in the most recent data set, prompting a review by government officials ahead of the pivotal political event. City economists had predicted borrowing for the month would amount to £15.2 billion.
For the current financial year, total borrowing has now exceeded £100 billion, climbing to £116.8 billion—nearly £10 billion higher than projections made by the Office for Budget Responsibility (OBR).
Martin Beck, a former Treasury economist now with WPI Strategy, noted, “The OBR may conclude that part of this overshoot [in government borrowing] reflects structural rather than cyclical weakness.” However, the fiscal watchdog will not factor these latest figures into its forecast set to be published next week.
The OBR is presenting its final forecasts to Reeves today, providing her with an official assessment of her fiscal headroom and the prospective effects of new Budget policies on growth. The latest data on taxation, spending, and borrowing will raise alarms for Treasury officials finalizing plans for a Budget that is likely to announce tax increases to address a £20 billion fiscal gap. Government borrowing costs stood at £8.4 billion for October.
Reeves has expressed intentions to utilize the Budget to reduce borrowing costs by mitigating the cost of living. According to OBR estimates from March, debt interest payments could surpass £110 billion this year, significantly exceeding both the defence budget and funding allocated for education.
Reeves anticipates that lowering borrowing costs will enable more public expenditure funds to become available. James Murray, Chief Secretary to the Treasury, stated, “Currently we spend £1 in every £10 of taxpayer money on the interest of our national debt. That money should be going to our schools, hospitals, police, and armed forces.” He added, “That is why we are set to deliver the largest primary deficit reduction in both the G7 and G20 over the next five years – to get borrowing costs down.”
As the Budget approaches, Treasury officials are scrutinizing individual tax receipts amid speculation of minor revenue-raising measures, rather than sweeping reforms that might contravene Labour Party manifesto commitments. Over the past week, markets have reacted uneasily to reports suggesting Reeves had abandoned plans to increase income tax, a move viewed by City investors as a reliable means of addressing the fiscal deficit.
Media briefings indicated that this potential tax hike was withdrawn due to improved OBR forecasts, although these claims are undergoing thorough examination by independent economists and Shadow Chancellor Mel Stride, who has sought clarification from the OBR concerning adjustments to the fiscal deficit.
The £20 billion fiscal deficit has largely stemmed from OBR revisions to productivity trend forecasts, anticipated downgrades of 0.3 percentage points, reversals concerning welfare savings, and heightened government borrowing costs.
The data emerging ahead of the Budget illustrates significant challenges for the government in managing public finances, with various pressures indicating complex fiscal dynamics. As economic conditions evolve, the ramifications of these financial decisions will warrant close observation in the coming months.
