- Government borrowing reached £18.3bn in August, £3.5bn above the OBR forecast.
- Borrowing for the financial year so far is £8.1bn higher than expected.
- Rising spending and borrowing costs could leave John Healey with less room ahead of the October Budget.
Britain’s government has borrowed £77.3bn in the first five months of the financial year, leaving John Healey with an £8.1bn gap against the official forecast as he prepares for his first Budget on October 28.
The latest UK government borrowing figures from the Office for National Statistics (ONS) show that public sector net borrowing reached £18.3bn in August, £3.5bn above the forecast from the Office for Budget Responsibility (OBR). It was also the second-highest August borrowing figure on record, behind 2020.
The problem for the Chancellor is not simply one month of higher borrowing. The ONS has also revised up borrowing for each of the previous four months, leaving the April to August total £8.1bn above the OBR's March forecast.
That means the October Budget is being prepared against a fiscal picture that has moved further away from the numbers on which the government's plans were based.
The money coming in is not enough to cover the pressure going out
Tax receipts have been relatively strong. Self-assessed income tax receipts in July and August were £18.6bn, £1.9bn more than in the same months last year.
But higher income has been outweighed by rising spending. The ONS said inflation had pushed up government spending on goods and services as well as welfare benefits. The current budget deficit, which covers day-to-day government spending and excludes investment, reached £51.9bn in the financial year to August, £4.8bn above the OBR's forecast.
Debt interest is another pressure on the government's finances. Public sector net debt stood at £2,985.5bn at the end of August, just below the £3tn mark, and equivalent to 93.8 per cent of GDP.
For Healey, the significance of the latest figures lies in how much flexibility remains once these pressures are taken into account.
The government has fiscal rules that constrain how much it can borrow and how its finances should look over the forecast period. The Chancellor is due to present the Budget on October 28, with the OBR expected to publish an updated economic and fiscal forecast alongside it. The government has said the Budget will meet its fiscal rules.
The Budget cushion is already under pressure
The £8.1bn overshoot does not automatically mean that the Chancellor will have to raise taxes or cut spending by the same amount.
Forecasts can change, and borrowing figures themselves are revised as more information becomes available. The ONS also noted that borrowing in the first five months of the financial year was £2.2bn lower than during the same period last year.
But the latest figures add to a series of pressures facing the Treasury.
Reuters reported that rising government bond yields since the OBR's March forecast have already reduced the government's fiscal headroom. The ITEM Club's chief economic adviser Matt Swannell estimated that the buffer against the government's main fiscal rules had fallen from more than £24bn in March to just over £10bn. That is an external estimate rather than an official OBR figure.
Higher borrowing costs matter because the government has to pay more to service its debt when interest rates and gilt yields rise. At the same time, inflation-linked spending can increase the cost of existing commitments.
That leaves Healey with several competing pressures before the Budget. The government has said it wants to increase investment in housing, reform social care and raise defence spending, while also maintaining its fiscal rules.
The latest borrowing figures do not determine what will appear in the Budget. But they make the updated OBR forecast particularly important.
If the fiscal gap remains, the Chancellor will have to set out how the government intends to keep its plans within its rules while dealing with higher spending and borrowing costs.
For households and businesses, the significance of today's figures may therefore become clearer on October 28, when Healey reveals how much of the government's financial room remains and how he plans to use it.
