- September borrowing of £16.6 billion is the highest since the pandemic and above OBR forecast
- Public sector pay rises and debt interest payments the biggest drivers
- Tax revenues increased as the economy grew but not by enough to offset demands on the public purse
Danni Hewson, AJ Bell head of financial analysis, comments on the latest public sector finances:
“If government finances were following the script of a Disney musical the last print before the new chancellor’s Budget would have discovered a pot of cash nestled under a magic money tree bathed in the light of a rainbow. But from the start the new Labour government hasn’t pulled its punches, warning us all that this Budget will be full of difficult decisions.
“Of course, some of those difficulties are of their own making. Though delivering chunky pay rises to public sector workers did end financially damaging strikes, it has left Rachel Reeves with a bigger hole to plug than she might otherwise have been dealing with.
“Economic growth has helped boost tax receipts, but not by enough to compensate for increased wage and benefits bills, decreased National insurance payments and £5.6 billion interest on all that inherited debt.
“There’s been a lot of scrutiny over Labour’s claims of a £22 billion ‘black hole’ but when you consider borrowing in the financial year to date has come in at £6.7 billion more than OBR forecasts from the last Budget in March, you can understand why just scrabbling around at the back of the sofa for a bit of loose change really isn’t going to cut it if public services aren’t going to be allowed to decline from where they currently are.
“If this Budget is going to ‘fix the foundations’ as ministers have briefed, then a number of those tax increases that have made it into newspaper print over the last few weeks will have to make it into the chancellor’s final draft.
“How Rachel Reeves sells it to us is going to be crucial. She needs to bring businesses and the household consumer with her on this journey if growth is going to reach meaningful enough levels to balance the books, which at the moment are heavily weighted against her.”
