UK annual government borrowing higher than forecast in blow to Chancellor

Money stock Credit: PA

Chancellor Jeremy Hunt has been dealt a blow as official figures revealed borrowing for the last financial year overshot forecasts, hitting £120.7 billion as wages and benefit payments soared.

The Office for National Statistics (ONS) estimated that full-year public sector net borrowing was £7.6 billion less than in 2022-23, but £6.6 billion more than predicted by the UK’s official forecaster.

The Office for Budget Responsibility (OBR) had estimated borrowing of £114.1 billion in the year to the end of March.

It comes after borrowing of £11.9 billion in March, which is £4.7 billion less than a year ago, but higher than the £10 billion expected by most economists.

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Jessica Barnaby, ONS deputy director for public sector finances said spending was "up about £58 billion", with increased spending on public services and benefits "outstripping large reductions in interest payable and energy support scheme costs".

Overall, government debt was around 98.3% of the UK’s annual gross domestic product (GDP) in March, around 2.6 percentage points higher than a year earlier and remaining at levels last seen in the early 1960s, the ONS said.

A spokesman for the Treasury said debt increased in recent years because "we rightly protected millions of jobs during Covid and paid half of people’s energy bills after Putin’s invasion of Ukraine sent bills skyrocketing.”

He added the government “must stick to the plan to get debt falling”.

The chancellor had said he was ready to “cut taxes and bet on growth” after the UK’s gross domestic product (GDP) grew again in February, and some experts have said these new figures won't prevent that plan from going ahead as the Conservatives look to boost their election chances.

Rob Wood at Pantheon Macroeconomics said: “We expect the Chancellor to cut taxes again before a likely October or November general election, despite borrowing overshooting his forecasts.”

He added: “Hunt can plan for another year of unrealistically weak public spending to generate ‘headroom’ against his fiscal rules and thereby manufacture the funds to cut taxes."

Others have said it is unlikely that Mr Hunt will have the financial flexibility to slash taxes.

“Unless the Chancellor is prepared to assume even greater spending restraint, it’s unlikely there will be another tax-cutting fiscal event before the election,” Andrew Goodwin, senior economic adviser to the EY Item Club, said.

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