British Public Borrowing Exceeds Forecasts

By William Schomberg

LONDON (Reuters) – British public borrowing in the first six months of the tax year surpassed official forecasts, as reported on Tuesday, highlighting the challenges for Finance Minister Rachel Reeves in her upcoming budget.

Borrowing reached 79.6 billion pounds ($103.50 billion) from April to September—almost 7 billion pounds more than expected by the Office for Budget Responsibility (OBR), which provides projections for government budgets.

In September alone, borrowing amounted to 16.6 billion pounds, falling short of the median forecast of 17.5 billion pounds from a Reuters poll of economists, yet exceeding the OBR’s earlier projection of 15.1 billion pounds.

This figure marks the third-largest borrowing total for September since records began in 1993.

The unexpected increase in borrowing this financial year has been largely driven by higher-than-anticipated public spending.

Alex Kerr, an economist from Capital Economics, noted that the data suggests limited room for Reeves to increase day-to-day spending without raising taxes. However, he mentioned that adjustments to her fiscal rules might enable her to boost public investment.

Reeves aims to augment public spending to enhance services and improve Britain's infrastructure, has indicated that taxes will increase, while ruling out hikes in most major tax rates.

Prime Minister Keir Starmer emphasized the principle that the financial burden should primarily impact those with greater means, anticipating tax increases particularly on wealthier individuals, including capital gains, dividends, inheritance taxes, and contributions to social security from employers.

Some employer organizations have raised concerns that these higher taxes could hinder the government’s objective of exponentially boosting Britain's economic growth.

Reeves accused the former Conservative administration of leaving her with a 22 billion-pound fiscal shortfall due to excessive spending. The Conservatives counter these claims, asserting that Reeves is preparing the ground for tax increases which she will attribute to them.

Deputy Finance Minister Darren Jones, responding to Tuesday’s data, continued to criticize the former government regarding public finances, stating, "Resolving this black hole in the budget next week will necessitate challenging decisions to stabilize our economy and fulfill the promise of change."

Reeves is widely anticipated to adjust the government's self-imposed fiscal rules to allow for increased borrowing for investment. However, with a cautious approach, particularly in light of the 2022 bond market crisis triggered by former Prime Minister Liz Truss’s extensive tax cuts proposals, investors advise careful navigation.

The ONS reported that public debt was 98.5% of gross domestic product in September, adjusting the previous estimate of exceeding 100% in August to now stand at 98.8%.

($1 = 0.7691 pounds)