UK government borrowing hit a five-year high in August, official figures show, increasing the likelihood that Chancellor Rachel Reeves will raise taxes in the November budget. The Office for National Statistics reported public sector net borrowing of £18bn, £3.5bn more than in August 2023 and well above City predictions of £12.75bn and the Office for Budget Responsibility's forecast of £12.5bn.
Total borrowing for the financial year to date reached £83.8bn, the highest since the Covid pandemic in 2020 and £16bn higher than the same period last year, exceeding the OBR's £72.4bn forecast. The pound fell against the dollar to about $1.35, while UK government borrowing costs rose.
The OBR attributed the overshoot to upward revisions of local authority borrowing and lower-than-expected VAT and other receipts. It predicted lower borrowing in the second half of the year, citing higher capital gains tax receipts and lower debt interest. However, economists warned that a weak economic outlook and rising borrowing costs would force tax rises or spending cuts.
Matt Swannell of the EY Item Club said, 'Taxes will almost certainly need to rise if the fiscal rules are to be met.' Capital Economics estimated the chancellor would need to raise about £28bn, mainly through higher taxes, to maintain a £9.9bn buffer against the fiscal rule. Chief Secretary to the Treasury James Murray insisted the government has a plan to reduce borrowing, focusing on economic stability and fiscal responsibility.
The figures come amid rising long-term borrowing costs, which hit a 27-year high, and after the Bank of England kept interest rates at 4% while scaling back its quantitative tightening plan. Shadow Chancellor Mel Stride criticised the government, saying, 'Keir Starmer and Rachel Reeves are too weak and distracted to take the action needed to reduce the deficit.'
