Government Borrowing Rises Ahead of Autumn Statement Announcements

Chancellor Jeremy Hunt appearing on the BBC One current affairs programme, 'Sunday with Laura Kuenssberg,' on Nov. 13, 2022. PA Media/James Manning

Official data showed an increase in government borrowing to £14.9 billion, in the second-highest October borrowing since monthly records began in 1993.

This is £4.4 billion more than was borrowed in October last year, according to the Office of National Statistics (ONS).

Compared to the forecast by the Office for Budget Responsibility (OBR) for October, the figure was up by £1.2 billion. This was the first time the figure overshot the official forecast this financial year.

Public sector net borrowing for the first six months of the financial year was at £83.4 billion. It compares to a £81.7 billion, previously estimated and published in September.

The difference is explained by reduced tax and national insurance contributions, as well as weaker income taxes.

Government debt of £2,643.7 billion reached 97.8 percent of GDP, which is 2.3 percent higher than a year ago and remains at levels last seen in the early 1960s.

However, despite the higher-than-predicted numbers for October, the ONS reported that borrowing over the financial year-to-date was £98.3 billion. This is £16.9 billion less than the £115.2 billion March forecast by the OBR.

The OBR is expected to revise its total borrowing forecast by between £13 billion and £16 billion, following the Autumn Statement, which will be delivered on Wednesday.

Chancellor Jeremy Hunt may have some room for tax cuts, which he previously said were “virtually impossible.”

“With the government still languishing far behind in the opinion polls and an election required before the end of January 2025, the chancellor, Jeremy Hunt, is under more pressure than ever to pull something out of the bag at the Autumn Statement on Wednesday, Nov. 22,” said Capital Economics economists.

Wiggle Room

While Downing Street will be relieved that borrowing over the financial year-to-date was lower than the OBR forecast, it will still be constrained in how much it can offer in terms of tax cuts.

The Institute for Fiscal Studies (IFS) has previously suggested that the government is “in no position to offer fiscal giveaways,”  faced with very high spending on debt interest.

The IFS cited weak growth and inflationary risks as key obstacles to tax cut decisions.

However, both Mr. Hunt and Prime Minister Rishi Sunak, having welcomed the latest CPI figures last week, said the goal of halving inflation by the end of the year has been accomplished.

Inflation slowed down 4.7 percent in the year to October, down from 6.3 percent in September.

“Now that inflation is halved, we can turn our attention to cutting tax,” the prime minister said on Monday.

The government wants to “reward work, by cutting taxes and reforming the benefits system so work always pays,” Mr. Sunak pledged.

Among the prime minister’s long-term economic priorities is reducing national debt, which is meant to keep inflation falling and get mortgage rates down to affordable levels.

The governor of the Bank of England, however, said that it was too soon to talk about beating inflation and cutting interest rates.

“We still have a long way to go. Interest rates will have to stay high enough for long enough to make sure we get all the way back to the 2 percent target,” said Andrey Bailey.

As the chancellor puts the final touches to Wednesday’s Autumn Statement, he will have to carefully balance the economic and the political costs of tax cuts.

The Conservatives are lagging behind the opposition Labour Party in opinion polls. The latest YouGov/Times voting intention poll shows the Conservatives on 21 percent of the vote, to Labour’s 44 percent.

While tax announcements could win votes for the Tories, they may not be economically beneficial against the piling national debt and high-interest rates.