UK government borrowing overshoots in blow to Reeves

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UK government borrowing sharply overshot expectations in August, in a blow to chancellor Rachel Reeves as she prepares for her first Budget next month.

The public sector borrowed £13.7bn, the highest August shortfall since 2021, according to the Office for National Statistics, as government spending grew more quickly than expected.

The deficit was £3.3bn higher than August last year and £2.5bn more than forecast by the Office for Budget Responsibility, the fiscal watchdog. Economists polled by Reuters had forecast borrowing of £12.4bn.

The figures come as Labour gears up for a critical Budget that will define its economic strategy. Reeves faces demands for increased investment to turn around creaking public services, but her scope for raising revenue is limited by promises not to raise a range of personal taxes.

The government is bound by fiscal rules requiring it to balance the current budget, which excludes investment, and to get public debt falling as a share of GDP between the fourth and fifth years of the forecast.

Reeves has warned that difficult decisions on tax, welfare and spending loom in the October 30 Budget. In July Labour claimed to have unearthed a £22bn departmental overspend in the current fiscal year as part of an audit of the government books.

Friday’s figures mean the public sector has borrowed £64.1bn since the start of the fiscal year in April, more than in the same five months last year and £6.2bn higher than forecast by the OBR. It is the third-highest year-to-August borrowing since monthly records began in January 1993.

“Today’s data shows the highest August borrowing on record, outside the pandemic,” said Darren Jones, chief secretary to the Treasury.

“Because of the £22bn 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.”

Public debt, or borrowing accumulated over time, was 100 per cent of GDP, remaining at levels last seen in the early 1960s, according to the ONS, following the surge in public spending during the Covid-19 pandemic.

That was an increase of 4.3 percentage points over the same time last year, although the ONS cautioned that this figure was likely to be revised.