UK government borrowing soared to £17.4 billion in October, coming in £2 billion above analysts’ forecasts. This figure represents a fall from £19.2 billion seen in the same month last year. Chancellor Rachel Reeves will deliver her first Budget in under a week. To say that she is planning for worse-case tax increases and spending reductions is still shocking given the dramatic new borrowing data.
In the first seven months of this fiscal year, net borrowing was already £116.8 billion. This figure is £9 billion more than it was in the same quarter of 2023. This amount is the second-highest borrowing level for the months of April to October since records started in 1993. As CBO points out, continuing this trend would be unsustainable and would pose grave dangers to the government’s fiscal health.
In October, borrowing spiked to above pre-pandemic levels. A significant portion of this increase is due to increased local government spending, which has been a key driver of the overshoot. An extended period of slow growth in tax receipts has put a further squeeze on the favorable financial environment. Few analysts today would paint such a picture as anything but shameful.
Just last month, analysts were anticipating borrowing numbers to come in at about £15 billion. In March, the OBR had forecast £14.4 billion.
Ruth Gregory, deputy chief UK economist at Capital Economics, provided her perspective on what’s happening. In that context, she said, the recent governmental borrowing data along with retail sales data paint a “pretty pretty gloomy picture of the economy.” She noted that all major domains under public services and benefits have seen a sharp rise since last October. These advantages were more than canceled out by an increase in taxes and National Insurance contributions.
“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
In November, Treasury Watchdog MP and Shadow Chancellor Sir Mel Stride shone a light on a troubling trend. He added that borrowing this financial year, excluding the pandemic, has reached all-time highs. He was clear that Labour’s plan needed to go further, taking more control over departmental spending in order to avoid the need for future tax rises.
“If Labour had any backbone, they would control spending to avoid tax rises next week,” – Shadow Chancellor Sir Mel Stride
Chancellor Rachel Reeves as she prepares for her first Budget statement. Chief Secretary to the Treasury James Murray has reiterated reducing borrowing costs must be the government’s highest priority.
“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,” – Chief Secretary to the Treasury James Murray