A combination of worse-than-feared government borrowing and a big drop in retail sales has added to predictions of take hikes to come in the Budget
Chancellor Rachel Reeves was dealt a double blow ahead of next week’s Budget with official figures howing higher-than-expected government borrowing and a fall in shop sales last month.
The Office for National Statistics said public sector borrowing stood at £17.4billion in October, lower than a year ago but the third highest for the month since records began.
The figure was more than the £15billion expected by most economists and higher than the £14.4billion forecast in March by the UK’s independent fiscal watchdog, the Office for Budget Responsibility
The data adds to expectations of tax hikes by the Chancellor in the Budget on Wednesday to help plug a black hole in the UK public finances, estimated at up to £50billion by some economists.
Separate ONS data showed a bigger than predicted 1.1% fall in retail sales last month, suggesting shoppers are nervous of spending ahead of any hit to their incomes.
Ruth Gregory from consultants Capital Economics said both sets of figures “paint a pretty grim picture” adding that tax rises in the Budget could hit consumer spending over Christmas and into the new year.
Government borrowing for the seven months of the financial year to date was £116.8billion – £9billion higher than the same period a year ago.
Treasury Chief Secretary James Murray said the Budget would set out how Ms Reeves intends to cut debt. “Currently, we spend £1 in every £10 of taxpayer money on the interest of our national debt,” he said.
“That money should be going to our schools, hospitals, police and armed forces. That is why we are set to deliver the largest primary deficit reduction in both the G7 and G20 over the next five years – to get borrowing costs down.”
Public sector net debt, excluding the Bank of England, reached £2.77trillion at the end of October, which is around 90% of gross domestic product.
The ONS said the debt interest payments on government borrowing eased back by £900million to £8.4billion last month, as much of it is linked to Retail Prices Index measure of inflation, which has fallen back in recent months.
ONS chief economist Grant Fitzner said: “While spending on public services and benefits were both up on October last year, this was more than offset by increased receipts from taxes and national insurance contributions.”
Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said: “The data strengthens our view that the Budget plans will be on shakier foundations now the government has seemingly shelved its income tax hike plans.”
Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK said: “It now seems likely that the Treasury will opt for the ‘smorgasbord’ approach of dozens or even hundreds of tax increases.”
