The latest economic data released today by the ONS doesn’t exactly make for good reading for new Chancellor, Rachel Reeves. In this analysis, Danni Hewson, AJ Bell head of financial analysis, comments on the latest public sector finances data released today as she warns that either cuts to public spending or tax rises in the autumn now look to be on the cards, saying:
“This latest set of figures shows the parlous state of the public finances. Borrowing in July came in a staggering £3 billion higher than OBR forecasts as the cost of servicing the UK’s debt mountain remained elevated.
“Inflation has ravaged the public purse, increasing everyday costs and requiring additional cash to cover higher benefit payments and cuts to National Insurance. It will take time for the bruises left by high inflation to soften and for the growth which is cause for optimism to filter through to a much higher tax take.
“Tax receipts have increased and debt interest has fallen, but not by the kind of margins that will make a real difference with so many pressures being heaped on. And time is a luxury the new Chancellor doesn’t have.
“Rachel Reeves expected to be faced with tough decisions when she walked through the doors of Number 11. Paying for past commitments must have a knock on effect to the plans which had been nurtured by a government in waiting. Borrowing more to cover those increased costs, to cover improvements to public services, and those pay increases to settle industrial disputes, means risking the UKs debt mountain topping 100% of GDP. Especially as borrowing in the first four months of the year has already topped OBR estimates set out at the previous Budget.
“The sofa has already been rifled for overlooked pennies, which suggests either uncomfortable cuts or tax hikes are on the cards in the autumn.”
