- Written by Darshini David and Sam Gruet
- Chief economics and business correspondent at BBC News
Official figures show government borrowing in October was higher than expected at £14.9bn, largely driven by higher benefit payments.
But the numbers showed a smaller than expected deficit during the first half of the fiscal year.
This is due to higher tax revenues in previous months, reflecting higher wages and inflation.
This comes as speculation grows about the possibility of tax cuts in the Chancellor’s autumn statement on Wednesday.
Spending on cost-of-living payments and rising interest on the public debt – the largest in October since monthly records began – meant public finances ran a larger deficit than in the same period last year.
Borrowing rose by £4.4bn on the previous year and is the second highest figure for October, behind only the figure for 2020 when spending was affected by the pandemic.
The borrowing figure – the difference between spending and tax income – was also higher than the £13.7bn forecast by the UK’s independent financial watchdog, the Office for Budget Responsibility (OBR).
This was the first time that borrowing exceeded the CBO’s forecast this fiscal year.
But better-than-expected tax revenues earlier in the financial year resulted in a smaller overall deficit than the Office for Budget Responsibility had forecast at spring budget time.
The Office for National Statistics said the government had borrowed a total of £98.3 billion since the start of the financial year. This is £21.9 billion more than the previous year, but less than the £115.2 billion expected by the Office for Budget Responsibility in March.
In response to the latest borrowing statistics, Chancellor Jeremy Hunt said he would continue to support the Bank of England in bringing inflation down to 2%.
“This means being responsible for the country’s finances,” he added.
Bank of England Governor Andrew Bailey said on Tuesday that inflation is on track to return to the bank’s 2% target.
However, speaking to MPs on the Treasury Committee, he warned there were risks that “price growth could be stuck at a high level”.
The figures on the health of public finances are mixed news for the Chancellor as he finalizes his autumn statement on Wednesday, and a reminder that he may choose not to give households big tax cuts just yet.
Some economists believe the Chancellor will now stick to his self-imposed rules on borrowing of around £20bn, sparking speculation about tax cuts.
“With the election looming, the finance minister may not be able to resist the temptation to reveal pre-election news,” commented Ruth Gregory of Capital Economics.
She added that any wave before the election in 2024 “will almost certainly be followed by significant tax increases in 2025 after the election.”
Sir John Geoff, former deputy governor for financial stability at the Bank of England, said the government’s finances had improved due to higher wages and higher inflation, which led to increased revenues from income tax and value-added tax.
“It did not increase tax thresholds [on income tax]. The question is: Should he bring back a little of this?” he asked.
But others expect Wednesday’s statement to focus on helping businesses, with households likely having to wait until next spring for big grants to be announced.
Responding to the ONS data, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the latest figures provided a “timely reminder that the task of returning public finances to a sustainable level is far from complete”.
He also predicted that the majority of tax cuts announced in the autumn manifesto are unlikely to come into force until after the next general election.