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Public sector pay deals help drive up UK borrowing Public sector pay deals help drive up UK borrowing
(about 2 hours later)
Government borrowing was much higher than expected in October, as debt interest payments hit a record high and public sector pay rises contributed to higher spending. Government borrowing was much higher than expected in October, as debt interest payments hit a record high for the month and public sector pay rises contributed to higher spending.
Borrowing - the difference between spending and tax take - stood at £17.4bn last month, the second highest October figure since monthly records began in 1993.Borrowing - the difference between spending and tax take - stood at £17.4bn last month, the second highest October figure since monthly records began in 1993.
The borrowing figures are the first to be released since Chancellor Rachel Reeves' first Budget last month. The borrowing figures are the first to be released since Chancellor Rachel Reeves' first Budget last month, which outlined higher spending and increased taxes.
"October’s disappointing public finances figures underline the fiscal challenge that the chancellor still faces," said Alex Kerr, UK economist at Capital Economics. However, analysts said the worse-than-expected borrowing figure underlined the difficulties the chancellor faced in keeping public finances under control.
Jessica Barnaby, deputy director for public sector finances at the Office for National Statistics (ONS), which produced the figures, said: "Despite the cut in the main rates of National Insurance earlier in 2024, total receipts rose on last year.
"However, with spending on public services, benefits and debt interest costs all up on last year, expenditure rose faster than revenue overall." The borrowing figures are the latest piece of challenging data for the government.
The ONS figures showed that interest payments on government debt hit £9.1bn last month, the highest October figure since monthly records began in 1997. Inflation figures released on Wednesday showed prices rising faster than expected, while last week it emerged that the economy barely grew between July and September.
Borrowing in the financial year to October has now reached £96.6bn, which is £1.1bn more than at the same point last year. In addition, the chancellor has come under pressure from businesses and the farming community to reverse some of the tax increases announced in the Budget.
Last month's Budget is set to increase government spending by almost £70bn a year over the next five years, according to the Office for Budget Responsibility,, external with half funded through higher taxes and the rest coming through higher borrowing. Questions have also been raised over Reeves' CV, following claims she had embellished some of her past achievements.
The ONS figures showed that government spending on pay was up £2.2bn from a year earlier, reflecting some the impact of the latest public sector pay deals. The Office for National Statistics (ONS), which produced the figures, external, said government revenue had risen last month, despite the cut in National Insurance rates earlier in 2024.
When Labour came to power it announced above-inflation backdated pay increases for NHS staff and teachers. "However, with spending on public services, benefits and debt interest costs all up on last year, expenditure rose faster than revenue overall," said Jessica Barnaby of the ONS.
Chief Secretary to the Treasury Darren Jones said again that the Labour government had inherited a difficult economic situation following the General Election. Interest payments on government debt hit £9.1bn last month, the highest October figure since monthly records began in 1997.
"At the Budget we addressed this, fixing the foundations and putting public finances on a sustainable footing to rebuild the country," he said. The ONS figures also showed government spending on pay was up £2.2bn from a year earlier, reflecting some of the impact of the latest public sector pay deals.
When Labour came to power it announced above-inflation backdated pay increases for NHS staff and teachers, and these came into effect in October.
Borrowing in the financial year to October has now reached £96.6bn, the ONS said, which is £1.1bn more than at the same point last year.
Chief Secretary to the Treasury Darren Jones said Labour had inherited a difficult economic situation following the election, and the Budget was aimed at "fixing the foundations and putting public finances on a sustainable footing".
"This government will never play fast and loose with the public finances. Our new robust fiscal rules will deliver stability by getting debt down while prioritising investment to deliver growth.""This government will never play fast and loose with the public finances. Our new robust fiscal rules will deliver stability by getting debt down while prioritising investment to deliver growth."
Capital Economics' Mr Kerr said that October’s borrowing figures "underline the little wiggle room the chancellor has to significantly increase day-to-day spending". But Alex Kerr, UK economist at Capital Economics, said October's "disappointing" borrowing figures demonstrated "the fiscal challenge that the chancellor still faces", with Reeves having "little wiggle room".
"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," he said, referring to chancellor's self-imposed targets. "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," he said, referring to the chancellor's self-imposed targets.
The ONS said that public debt - the total amount of money owed by the government that has built up over years - had reached £2.7 trillion. Last month's Budget is set to increase government spending by almost £70bn a year over the next five years, according to the Office for Budget Responsibility,, external with half funded through higher taxes and the rest coming through higher borrowing.
The ONS said that net debt - the total amount of money owed by the government that has built up over years - had reached £2.8 trillion.
This amount is 97.5% of the size of the UK's economy as measured by gross domestic product (GDP), and remains at levels last seen in the early 1960s.This amount is 97.5% of the size of the UK's economy as measured by gross domestic product (GDP), and remains at levels last seen in the early 1960s.
At the Budget, Reeves changed the government's public finance rules, which will see it track a wider measure of debt to give it more scope to borrow for investment.
This new measure of debt - public sector net financial liabilities (PSNFL) - was at 83.7% of GDP in October, the ONS said.
The government is aiming to have this measure of debt falling as a share of the economy by the 2029-30 financial year.
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