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UK public sector borrowing was higher than expected in November, underscoring the limited scope for chancellor Jeremy Hunt to make tax cuts in the run-up to the general election.
According to data published by the Office for National Statistics on Thursday, public sector borrowing was £14.3bn last month, 0.9bn less than in the same month in 2022 but higher than the £12.9bn forecast by economists polled by Reuters.
The ONS said the annual fall was precipitated by lower spending on government energy support schemes, but that “these reductions in spending were offset by other inflation-related costs, such as increased benefit payments”.
The figures are closely watched to see if the chancellor has room for giveaways ahead of general election expected next year, where the Conservative party is trailing nearly 20 points behind the Labour party.
In last month’s Autumn Statement, Hunt cut business and personal taxes by £20bn in a bid to boost growth, but overall taxes continued to rise.
Ashley Webb, UK economist at Capital Economics, said there is still “scope for pre-election splash in Spring Budget”, adding that he expects borrowing for the whole fiscal year, ending in March 2024, to be £120bn.
That is below the £123.9bn forecast last month by the Office for Budget Responsibility, the UK fiscal watchdog, and lower than in the previous year.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the chancellor had headroom of £13bn in meeting his Autumn Statement target for the debt-to-GDP ratio to be falling in five years’ time.
He added that this could double if the recent falls in gilt yields and bank rate expectations are sustained.
“The consolidation is progressing well enough for modest tax cuts in the Budget,” he said, adding that he expected the chancellor to be “relatively restrained” with pre-election giveaways.
Chief secretary to the Treasury, Laura Trott, said: “The prime minister has made reducing debt a top priority. We are taking difficult decisions in the national interest to control our borrowing needs and improve productivity, so that we deliver the public services people need while keeping inflation down.”
The ONS also reported that central government receipts, mostly from taxes, were £77.6bn in November, £3.6bn more than in the same month last year and the highest for November since monthly records began in 1993.
High inflation has helped boost tax receipts as it pushes earners into higher tax brackets, particularly with the strong wage growth over the past year.
However, spending was also up from last year, driven by an increase of £1.2bn in welfare payments. These have risen in recent months because of inflation-linked benefits uprating as people continue to grapple with the cost of living crisis.
Since April, the government has borrowed £116.4bn, £24.4bn more than in the same period last year and the second-highest financial year-to-November borrowing on record.
This was due in part to a £3.8bn upward revision to borrowing in the year to October, continuing a series of upward revisions in recent months.
Public sector borrowing undershot the OBR’s forecast for most of this year, as a result of stronger tax receipts than in its March forecast.
Last month, the OBR revised down its borrowing forecasts for this year — April 2023 to March 2024 — to £127.9bn, down from £134bn previously expected.
