Government borrowing overshoots forecasts

20th Sep 2024 07:00

(Sharecast News) - Higher-than-expected borrowing in August pushed public sector net debt to 100% of GDP, official figures showed on Friday.

According to the Office for National Statistics, public sector borrowing - the difference between spending and tax revenue -reached £13.7bn in August.

That was £3.3bn more than August 2023 and the third-highest August borrowing since monthly records began in January 1993. Once the impact of the pandemic is stripped out, it is the highest August borrowing on record.

It was also £2.5bn higher than the £11.2bn forecast by the Office for Budget Responsibility, the fiscal watchdog.

Since the start of the financial year in April, borrowing has totalled £64bn, £6.2bn higher than the OBR forecast in March.

Central government tax receipts jumped £15bn in August, but National Insurance contributions fell - due to the reduction in the main rates announced earlier in the year - while benefits rose in line with inflation.

Inflation also pushed up running costs for public services.

As a result, public sector net debt (excluding public sector banks) was provisionally estimated by the ONS at £2.768trn, or around 100% of GDP.

That is 4.3 percentage points more than at the end of August 2023, and means debt remains at levels last seen in the early 1960s.

The figures will make for difficult reading for new chancellor Rachel Reeves, who is preparing for her first Budget next month. Prime minister Keir Starmer has already warned it will be "painful" after a £22bn black hole was identified in the public finances.

Darren Jones, chief secretary to the Treasury, said: "When we came into office, we inherited an economy that wasn't working for working people.

"We are now taking the tough decision to fix the foundations of our economy."

Matt Swannell, chief economic advisor to the EY Item Club, said: "At what is almost the halfway point of the fiscal year, the UK's fiscal position remains challenging, and Treasury analysis suggests the situation may deteriorate further over the remainder of the year.

"The Budget looks likely to feature a tweak to the fiscal rules, alongside some tax rises beyond those that had been set out during the general election campaign. A material rise in taxes alongside a loss of momentum throughout the economy may prompt the Monetary Policy Committee to deliver more interest rate cuts around the turn of the year."