Chancellor Rachel Reeves faces a fresh headache ahead of her first Budget this autumn after official figures revealed Government borrowing jumped by more than expected last month.
Borrowing rose to £13.7 billion last month, marking the third highest August on record, driven by higher spending on public services due to increased running costs and pay increases.
The increase means public sector debt hit 100 per cent of gross domestic product (GDP) at the end of August 2024.
The figure, which excludes public sector banks, means national debt is at levels last seen in the early 1960s, the Office for National Statistics (ONS) said.
ONS chief economist Grant Fitzner said: “Borrowing was up by over £3 billion last month on 2023’s figure, and was the third highest August borrowing on record.
“Central Government tax receipts grew strongly, but this was outweighed by higher expenditure, largely driven by benefits uprating and higher spending on public services due to increased running costs and pay.”
The ONS said public sector borrowing was £3.3 billion more than in August last year.
The total for August was also more than the £11.2 billion forecast by Britain’s official forecaster, the Office for Budget Responsibility (OBR), and more than the £13 billion most economists were pencilling in.
Chief Secretary to the Treasury Darren Jones said: “When we came into office, we inherited an economy that wasn’t working for working people.
“Today’s data shows the highest August borrowing on record, outside the pandemic. Debt is 100 per cent of GDP, the highest level since the 1960s.
“Because of the £22 billion black hole in our public finances we have inherited this year alone, we are taking the tough decisions now to fix the foundations of our economy, so we can rebuild Britain and make every part of the country better off.”
It comes after the new Chancellor accused the previous Conservative government of leaving a £22 billion black hole in the public finances.
The Government’s recent decision to restrict winter fuel payments to only those on pension credit is among the “tough decisions” Ms Reeves has said she will have to make in October, as part of an effort to plug the spending gap.
Borrowing in the financial year so far to August 2024 was £64.1 billion, £0.3 billion more compared to the same five-month period a year earlier.
Isaac Delestre, research economist at the Institute for Fiscal Studies, said: “With large swathes of the tax system seemingly off-limits due to Labour’s manifesto commitments, the Chancellor is going into this year’s Budget with one hand tied behind her back.
“There will be a temptation to increase revenues in ways that would be economically damaging.
“Stamp duty deserves a special mention as a tax that should not be increased.
“But Rachel Reeves also has the power to fix some of the more glaring deficiencies of our tax system: taxes on pensions, capital gains and inheritances (to name just three) are all crying out for reform.
“If she takes the opportunity to improve taxes, as well as increase them, she could be rewarded not only with more revenue but also with a tax system that is fairer and less of an impediment to growth.”
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