Government borrowing surged in August

Five weeks out from his first Budget, John Healey is scrambling to make the numbers add up. Figures just released by the Office for National Statistics (ONS) show the government borrowed £18.3 billion in August, making it the second highest August on record behind 2020. It was also £3.5 billion over the Office for Budget Responsibility’s (OBR) forecast for the month.

‘Spending increased more than government income from taxes… partly reflecting the impacts of inflation’, the ONS said, with borrowing for August up £2.9 billion (19 per cent) compared with last year.

What’s worse is this borrowing increase came despite an increase in tax receipts, which are £2.5 billion higher than a year ago, with income tax revenue up 6.6 per cent. Spending outpaced this and rose by £4.9 billion. Benefits are up £1.9 billion, mostly because they are uprated with inflation. And debt interest saw its highest August on record – £8.8 billion. Of that, £2.1 billion was the uplift on inflation-linked gilts.

Labour officials will no doubt cite the one bit of good news in the ONS’s figures: since April, the government has borrowed £2.2 billion less than the same period last year. But they’re unlikely to mention the fact that it is £8.1 billion more than the OBR pencilled in back in March. National debt stands at £2,985.5 billion, 94 per cent of the economy – lower than a year ago, but still, almost three trillion.

This is bad news for Healey’s Budget. The overshoot is on benefits and debt interest, two topics that Reform and Conservatives have well-oiled attack lines on. And his fiscal headroom is heading towards the single digits, down from £22 billion at the beginning of the year.