UK government borrowing for October 2023 came in at £17.4 billion, well above £15 billion that analysts had expected. This figure is a drop on £19.2 billion reported in the same month last year. The Office for National Statistics (ONS) made these numbers public. This announcement is therefore a huge boost at this crucial moment with Chancellor Rachel Reeves due to deliver her first Budget in less than a week’s time.
Over the first seven months of the financial year, the government’s total borrowing so far has reached £116.8 billion. That’s a £9 billion rise compared to the first six months of 2022. It further stands as the second-highest level of borrowing for the April to October stretch since record keeping started in 1993. The Office for Budget Responsibility (OBR) had already forecast borrowing of £14.4 billion over this period.
Negative consequences for the economy
Chancellor Reeves is feeling the heat from all sides as she heads toward the Budget reveal. Recent borrowing figures will further muddy the waters of her fiscal maneuvers. Both an increase in taxes and a decrease in spending are being discussed. James Smith, an analyst at investment bank ING, noted that the latest borrowing figures would not be well-received by the Chancellor.
“This only underscores the generally poor fiscal picture facing the chancellor as she looks set to tighten fiscal policy in the forthcoming Budget,” – Ruth Gregory, deputy chief UK economist at Capital Economics.
Five key factors explain why borrowing came in more than $1 trillion above expectations. Smith said that increased spending on local authorities was a major factor behind the overshoot. In addition, recurring slow-to-no growth in tax receipts further stressed government finances. Public services Public Benefits Spending on public education, health care, and social services were up sharply over October 2022. This increase was insufficient to offset the increase in new tax revenues from National Insurance contributions.
“While spending on public services and benefits were both up on October last year, this was more than offset by increased receipts from taxes and National Insurance contributions,” – Chief Secretary to the Treasury James Murray.
It seems the economic outlook could not be worse, with Gregory describing the national picture as a “pretty grim picture.” She added that the combination of extreme borrowing costs and dismal retail sales paint a concerning picture of the overall UK economy. This leverage creates urgency for Reeves’ initial budget choices due in March.
Commenting on the record high costs and borrowing levels Sir Mel Stride, Shadow Chancellor condemned the government’s record. He underscored that current levels of borrowing are unprecedented outside of the pandemic.
“If Labour had any backbone, they would control spending to avoid tax rises next week,” – Shadow chancellor Sir Mel Stride.
Meanwhile, Chancellor Reeves is putting the final touches on her budget plans. She has huge economic challenges ahead and so needs to be careful about the balance between fiscal responsibility and what’s required of public service. The competing demands of shoring up basic services and addressing our growing national debt will be the overriding story in the next few months.