Britain’s government borrowing rose faster than official forecasts expected in September, in a timely reminder of the challenges facing Rachel Reeves as she prepares to deliver the budget next week.
The UK borrowed £16.6bn last month to cover the difference between public sector spending and income. That’s £2.1bn more than in September 2023 and the third highest September borrowing since monthly records began in January 1993.
Significantly, it’s also £1.5bn higher than the £15.1bn borrowing forecast by the Office for Budget Responsibility (OBR) for September, a sign that higher borrowing is adding to the chancellor’s challenge of raising money for public services without breaking pledges not to raise certain taxes.
However, it’s a little lower than the £17.5bn which City economists had forecast.
Jeremy Hunt’s cuts to national insurance hit the government’s tax take last month, today’s public finances report shows. The ONS says that compulsory social contributions decreased by £0.9bn to £13.9bn in September, “largely because of the reductions in the main rates of National Insurance in early 2024”.
Hunt cut 2p off national insurance from January, and followed this up with a second 2p cut in April, which brought the main rate of national insurance contributions (Nics) paid by workers down to 8%. In April, the Treasury says that the average worker on £35,400 will save more than £900 a year as a result of the cuts in January and April. Having promised not to raise taxes on ‘working people’, Reeves can’t really reverse Hunt’s cuts. But, she has strongly hinted that she could raise employer national insurance contributions.
Overall (despite the cut to national insurance) central government tax receipts increased by £3.9bn to £60.5bn in September.That included a £1.8bn increase in income tax, a £800m rise in corporation tax, and a £600m pick-up in VAT receipts.
The cost of servicing the UK’s national debt jumped last month. The interest payable on the UK’s government debt rose to £5.6bn last month, up from just £900m in September 2023. The interest bill on index-linked debt rises and falls with the Retail Prices Index measure of inflation.
Public sector pay rises also added to government spending – and thus borrowing – last month. Shortly after taking office, the Labour government settled pay claims with junior doctors, and with train drivers, to end industrial action that had been hurting the economy.
Reeves is in Washington DC for the annual meetings of the IMF and World Bank, where finance ministers, central bank governors, thinktank chiefs and charity bosses will discuss the state of the global economy and its ability to generate a higher standard of living. We’ll hear from the IMF, and from Bank of England governor AndrewBailey, later today.
The agenda • 7am BST: UK public finances for September • 7am BST: European Union car sales for September • 2pm BST: IMF to publish World Economic Outlook • 2.25pm BST: Bailey gives keynote address at Bloomberg Global Regulatory Forum • 3.15pm BST: IMF to publish Global Financial Stability Report
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