Labour borrowing hits £16.6bn as Rachel Reeves to unleash £22bn blow | Personal Finance | Finance
Chancellor Rachel Reeves‘ challenge ahead of her first Budget has been laid bare after figures showed government borrowing in the financial year so far has surged past official estimates.
The Office for National Statistics (ONS) said public sector net borrowing in the first half of the financial year stood at £79.6billion – £1.2billion more than a year earlier and £6.7billion higher than forecast by the independent fiscal watchdog, the Office for Budget Responsibility (OBR).
Government borrowing rose to £16.6billion last month, according to the ONS, up £2.1billion year-on-year and marking the third highest September borrowing since records began – thanks in part to Labour’s public sector pay hikes.
This came despite the first fall in central government benefit payments since early 2022, in part due to Labour’s decision to deny millions of pensioners the Winter Fuel Allowance, which is paid out in November, and last year cost around £2billion.
While the September figure is below the £17.5billion pencilled in by most economists, the year-to-date overshoot of OBR forecasts presents a further headache for Ms Reeves ahead of next week’s Budget.
Treasury Chief Secretary Darren Jones warned the state of the public finances meant there would be “difficult decisions” in the October 30 Budget.
He said: “We have inherited a £22bn black hole in the country’s public finances, including no plan to fund pay deals for millions of public sector workers.
“Strikes cost at least £3bn last year, so it was the right thing to do to end those damaging disputes.
“Resolving this black hole at the Budget next week will require difficult decisions to fix the foundations of our economy and begin delivering on the promise of change.”
Jessica Barnaby, ONS Deputy Director for Public Sector Finances, said: “Borrowing this month was about £2billion up on last year, making this the third highest September figure on record.
“While tax revenue increased, this was outweighed by increased spending, partly due to higher debt interest and public sector pay rises.”
The Resolution Foundation think tank said Government spending so far this financial year was £11.5billion more than forecast by the Budget watchdog, which tallies with Ms Reeves’ disputed claim of a £22billion hole in the public finances.
Senior economist at the Resolution Foundation, Cara Pacitti, said: “Six months into the financial year, Britain is borrowing £6.7billion more than expected at the time of the Budget in March.
“This reflects central government spending which is £11.5billion higher than anticipated, largely due to public sector pay rises and higher running costs.
“Today’s data highlights the scale of the public finances challenges facing the Chancellor as she grapples with overspending today, the need to avoid austerity in the future, and having to fund extra public service spending through tax rises.”
