Public sector net borrowing came in at £17.4bn in October, which was £1.6bn more than a year ago and the second-highest October on record
The £40 billion tax hikes included in the budget may not be the last, following a surge in government borrowing, it has been suggested. Public sector net borrowing was reported at £17.4bn in October, which is £1.6bn more than the same time last year and the second-highest October on record.
This means that total borrowing for the period between April and October reached £96.6bn, which is around £1.1bn higher than the same period last year. The cost of paying interest on the national debt is proving to be a significant drain on public funds.
When the Tory-led government took power in 2010, the UK national debt was just over £1 trillion, but this had risen to £2.9 trillion when the Conservatives were voted out in the general election earlier this year. Increases in public sector pay for professionals such as doctors, train drivers, nurses and others have put a strain on government finances, while measures to protect public services from cuts have also increased borrowing.
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Chancellor Rachel Reeves indicated that the tax increases announced last month would be the last of this Parliament, however, City experts believe the worsening financial situation suggests this may not be the case. Matt Swannell, Chief Economic Advisor to the EY ITEM Club, warned that the situation means future tax increases ‘cannot be ruled out’. He stated: “Continued spending pressure is the main reason that borrowing is higher than in 2023-2024.
“The Budget has seen an uptick in government spending, taxation, and borrowing, which means fiscal policy will be less restrictive than was previously planned. Despite the changes announced at the Budget, fiscal policy will continue to tighten over the next few years. Moreover, the Chancellor has left herself little wiggle room against her own fiscal rules and may need to implement more tax rises in future years if the tax take disappoints or spending proves higher.”
He further indicated that the government could be constrained by its financial targets due to the recent spike in market interest rates: “Indeed, if the rise in market interest rates since the Budget is sustained, the Government would already have less headroom against its fiscal targets.”
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Alex Kerr, an economist at Capital Economics commented, “October’s disappointing public finances figures underline the fiscal challenge that the Chancellor still faces, despite the big increases in spending and taxes announced in the Budget.”
On potential future policies, Kerr suggested that further tax hikes could be on the horizon: “And while the Chancellor has downplayed the chances of further tax-raising measures, if she wants to increase day-to-day spending in future years, she may need to raise taxes to pay for it.”
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In response to concerns over fiscal responsibility, Darren Jones, Chief secretary to the Treasury, reassured the public with a firm statement: “This government will never play fast and loose with the public finances.”
He laid out the government’s stance, saying, “Our new robust fiscal rules will deliver stability by getting debt down while prioritising investment to deliver growth.”
