Britain’s borrowing bill again exceeded expectations in August, increasing pressure on Chancellor Rachel Reeves ahead of Labour’s first budget on October 30.
Official data from the Office for National Statistics (ONS) shows that public sector net debt reached £13.7 billion last month, well above the £11.2 billion forecast by the Office for Budget Responsibility (OBR). This pushed Britain’s debt ratio to 100 percent, signaling a significant budget challenge for the government.
The higher credit figures were largely due to higher spending on benefits, which were upgraded in line with inflation, along with additional spending on government operations. Despite this, the cost of servicing Britain’s debt fell for the fourth month in a row, by £100 million to £5.9 billion, due to a fall in the inflation measure for retail prices. Tax revenues from VAT, income tax and corporate tax also showed an increase compared to the same period last year, while national insurance premiums fell as a result of a rate reduction by the previous government.
Labor has pledged not to increase VAT, income tax and corporation tax, all of which make up the bulk of government revenue.
Britain’s total lending has exceeded expectations for three consecutive months and is currently £7 billion higher than expected since the start of the financial year in April. Since taking office in July, Labor has pointed to a £22 billion budget deficit left by the previous government.
However, Chancellor Reeves received a £10 billion budget boost ahead of her autumn budget plans after the Bank of England announced it would sell fewer government bonds back to the market. This reduction in bond sales, part of the Bank’s quantitative tightening strategy, could reduce losses covered by cash transfers of government bonds and provide additional fiscal space, according to Goldman Sachs.