Government support to protect households from swelling energy bills and a surge in debt interest payments led UK borrowing to reach a record high for November, figures out today show.
Britain borrowed £22bn last month, up nearly £14bn compared to the same period last year, the Office for National Statistics (ONS) said.
One-off payments to poorer households to help with rising energy costs and the Government capping typical bills at £2,500 per year, pushed subsidy spending up nearly £5bn, widening the gap between the treasury’s tax revenue and expenditure.
A government borrows money when spending rises above revenue due to the public finances being deficit. Soaring prices kicked the UK’s interest bill £2.4bn higher to £7.3bn in November, also a record for that month.
A large chunk of the Government’s debt pile is linked to the retail price index, an old measure of inflation, meaning when prices rise, so does Britain’s debt bill.
The RPI hit 14 per cent last month. CPI inflation reached 10.7 per cent, leading economists to bet this year’s surge has passed its peak.
Analysts said the monthly borrowing figure is consistent with the Government hitting the Office for Budget Responsibility’s (OBR) annual forecast of £177bn.
“We judge the data are broadly consistent” with the Government reaching the budget watchdog’s projections, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said.
However, Tombs said the OBR’s assumption that the UK economy will grow above two per cent each year after 2024 is too optimistic, meaning borrowing may top its forecasts over the coming years.
Weaker economic growth is set to weigh on the Government’s tax revenues, raising the risk that chancellor Jeremy Hunt will miss his fiscal target of not borrowing more than three per cent of GDP each year.
“We think public borrowing eventually will settle at about four per cent of GDP in the mid-2020s, above the three per cent ceiling specified by the new fiscal rules,” Tombs added.
Others added Hunt could hike taxes or cut spending further to ensure he hits his targets.
“The budget deficit is on a deteriorating path and that will only tighten the Chancellor’s grip on the public finances,” Ashley Webb, UK economist at Capital Economics, said.
Hunt also wants to get the debt-to-GDP ratio in five years’ time. The ONS said debt as a share of the economy dropped 0.3 percentage points to 98.7 per cent.
Hunt said “tough decisions” are needed “to put our public finances back on a sustainable footing”.