Public Sector Net Borrowing Lower Than Predicted £13 Billion

A Union Jack flag flutters in front of the Elizabeth Tower, commonly known as Big Ben in London, on February 1, 2017. Photo by Jack Taylor/Getty Images

Public sector net borrowing stood at £11.6 billion last month, which was lower than the £13 billion predicted by the Office for Budget Responsibility (OBR).

Last month was the fourth highest August borrowing in 20 years, the Office of National Statistics said.

It also reported the budget deficit between April and August to be £69.6 billion, which was £19.3 billion more than a year ago. However, it is far below the £81 billion figure, projected by the UK fiscal watchdog, the OBR.

Reacting to data published on Thursday, the OBR said that the “downside surprise is more than explained by higher central government receipts.”

The government collected £12.6 billion more than predicted by the OBR.

Revenue from taxes brought the central government £57.6 billion, while the income taxes and the VAT both increased by £1.2 billion.

August also usually delivers high accrued receipts because this is when the self-assessed income tax (SA) payments are received after the July deadline.

The SA receipts were £1.5 billion, said the ONS, £0.8 billion less than same month last year.

Speaking after August borrowing numbers were published, Chancellor Jeremy Hunt said: “These numbers show why, after helping families in the pandemic, we now need to balance the books. That becomes much easier when inflation is under control because higher inflation pushes up interest rates, so we need to stick to the plan to get it down.”

The cost-of-living crisis in the UK had the government spending more on benefit payments and disability cost-of-living payments, the ONS reported.

In August, net social benefits were £23.5 billion, £2.7 billion more than the same time a year ago.

Operating in the “risky” era for public finances, the government faces borrowing figures at the highest levels since the mid-1940s, fuelled by the energy crisis and the pandemic.

“The coronavirus (COVID-19) pandemic had a substantial impact on the economy as well as public sector borrowing,” said the ONS.

Expressed as a proportion of GDP, borrowing in the financial year ending 2022, fell from 15 percent to 5.3 percent, as the economy recovered from the pandemic. This year, the proportion fell further to 5.1 percent, as the energy crisis kicked in and affected public finances.

No Borrowing Binge

Downing Street’s economic mantra since the start of the year has been to halve the historically high inflation rate by the end of 2023, down to 5 percent.

While, the slowdown of CPI inflation to 6.7 percent in August brought relief to the Treasury, Mr. Hunt has warned against a “borrowing binge” because it would “simply keep interest rates higher for longer.”

The chancellor will deliver his autumn statement in November, and with the budget deficit at a better standing than OBR forecasts, the Treasury could announce a big tax cut in spring.

This would be a well-received timing for the Conservative Party, coming ahead of a general election.

“While the chancellor has ruled out tax cuts in the Autumn Statement on Nov. 22, he will probably have some wiggle room for tax cuts and/or spending rises in the March 2024 Budget. That would give the Bank of England another reason to keep interest rates at their peak for longer than the Fed and the ECB,” said Ashley Webb, economist at Capital Economics.

Thursday saw the Bank of England maintain the bank rate at 5.25 percent, despite earlier market predictions of a hike up to 5.5 percent.

The BoE said it expected the CPI inflation to fall significantly further in the near term “despite the renewed upward pressure from oil prices.”

It also projected inflation in the services sector to remain high, with some potential month-to-month volatility.