Borrowing beats expectations as Rachel Reeves prepares tax rises
Government borrowing overshot official projections in September, in a sign of the difficult fiscal position that the Chancellor faces as she puts the finishing touches to her first tax and spend Budget.
According to new figures released by the Office for National Statistics (ONS), government borrowing totalled £16.6bn in September.
This was the third-highest September borrowing since records began in 1993. It was also ahead of official forecasts.
Back in March, the Office for Budget Responsibility (OBR) forecast that the government would borrow £15.1bn in September.
This means that government borrowing has come in £6.7bn ahead of the OBR’s forecasts so far this year.
“While tax revenue increased, this was outweighed by increased spending, partly due to higher debt interest and public sector pay rises,” ONS Deputy Director for Public Sector Finances Jessica Barnaby said.
The government had to spend £5.6bn on interest payments in September, which was roughly in line with recent monthly averages.
Public sector debt was estimated to be at 98.5 per cent of GDP, 4.0 percentage points higher than the same period last year.
Alex Kerr, UK economist at Capital Economics, said the figures highlight “the limited scope the Chancellor has to increase day-to-day spending without raising taxes”.
Back in July, Rachel Reeves revealed that there had been a £22bn overspend on departmental budgets, which would need to be addressed in the Budget. But last week Reeves told the Cabinet that addressing this shortfall was still only enough to keep public services “standing still”.
The latest reports suggest she wants to raise around £40bn through a combination of tax rises and spending cuts to boost funding for public services.
Reeves reportedly has plans to hike capital gains tax, increase national insurance contributions for employers and extend the freeze on income tax thresholds.
The scale of the tax increases has sparked warnings that the government risks putting off investment and derailing an economic recovery which has surpassed expectations so far this year.
On the spending side, Reeves wants to push ahead with new welfare reforms, which could save around £3bn.
“Resolving this blackhole at the Budget next week will require difficult decisions to fix the foundations of our economy and begin delivering on the promise of change,” Darren Jones, chief secretary to the Treasury said.