The government has borrowed £9.9 billion more than expected so far this financial year, increasing economic pressure on Chancellor Rachel Reeves as she prepares to deliver the Budget next week.
New figures from the Office for National Statistics (ONS) show that public sector borrowing reached £17.4 billion in October, down £1.8 billion on the same month last year but still the third highest October total on record. Since April, borrowing has reached £116.8 billion, the second highest for the period on record and almost £10 billion more than the Office for Budget Responsibility forecast in its March spring statement.
The data comes at a crucial time for Reeves, who is expected to announce tens of billions of dollars in tax increases next week. A planned rise in income tax was scrapped after revised OBR forecasts suggested the budget outlook had improved slightly, but the overall picture remains challenging.
Treasury chief secretary James Murray said rising debt servicing costs would limit resources for frontline public services.
“Currently for every £10 of taxpayers’ money we spend £1 on interest on our national debt,” he said. “This money should go to our schools, hospitals, police and armed forces.”
Murray said the Budget would provide for “fair decisions” to cut NHS waiting lists, reduce debt and reduce the cost of living.
According to the ONS, the government spent £8.4 billion on debt servicing in October, slightly less than £9.3 billion a year earlier. Grant Fitzner, the ONS’s chief economist, noted that tax and social security receipts were higher than last year, helping to offset increased spending on benefits and public services.
Economists warned that the borrowing numbers underscore the difficult situation facing Reeves. Pantheon Macroeconomics said the figures had no impact on the budget itself as the OBR forecasts had already been finalized, but they “illustrate the difficult backdrop” facing the Chancellor.
Capital Economics highlighted the high levels of local government borrowing and surprisingly slow growth in tax revenues despite inflation-related increases in consumption.
The Institute for Fiscal Studies said the latest data “shows uncertainty over tax revenues, pressures on public spending and the stubbornly high costs of servicing government debt.”
Following the announcement, 10-year British government bond yields fell to 4.5 percent, while sterling remained stable at $1.30.
