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UK public sector borrowing was lower than the official forecast in August, boosted by higher tax receipts and potentially providing room for tax cuts or spending increases ahead of the next general election.
Data published on Thursday by the Office for National Statistics showed that public sector net borrowing hit £11.6bn last month. That was £3.5bn more than in August 2022 but below the £13bn forecast by the Office for Budget Responsibility, the UK fiscal watchdog.
In the first five months of the current fiscal year, borrowing was £69.6bn. That was £19.3bn more than in the same five-month period last year but £11.4bn less than the £81bn forecast by the OBR. This is despite an upward revision to borrowing in the first four months of the fiscal year.
The figures will be closely watched by Conservative MPs who want the government to cut taxes. Chancellor Jeremy Hunt is due to give his autumn statement on November 22, with a general election expected next year.
“August’s public finances figures continued the recent run of better than expected news on the fiscal position,” giving the chancellor “a bit more wriggle room for pre-election giveaways”, said Ashley Webb, economist at Capital Economics.
Webb expected spending rises or tax cuts would happen in the Budget in March 2024, which “would give the Bank of England another reason to keep interest rates at their peak for longer than the Fed and the European Central Bank”.
However, Hunt expressed caution on Thursday. “These numbers show why after helping families in the pandemic we now need to balance the books,” said the chancellor. “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.”
UK prices rose less than expected in August, lowering the annual rate of inflation to 6.7 per cent. The Bank of England is due to announce its latest interest rate decision at midday on Thursday.
Governments often cut taxes in the run-up to general elections, but “the ongoing increase in hospital waiting lists and the need to invest in public buildings points to little scope to fund tax cuts by squeezing spending”, said Samuel Tombs, economist at Pantheon Macroeconomics.
The ONS data showed August recorded another month of buoyant tax receipts, which boosted the central government’s receipts to £76.6bn in August, £3.1bn more than in the same month last year and £1.2bn above the OBR forecast. Income tax and value added tax receipts were both £1.2bn higher than in August last year, reflecting strong wage growth.
Higher receipts were offset by increased government expenditure, which in August was £84.9bn, up £4.3bn from the same month last year but largely in line with the OBR forecast.
Public sector net debt, or borrowing accumulated over time, was estimated at about 98.8 per cent of the UK’s annual gross domestic product, a level last seen in the early 1960s.
