Energy support leads to jump in UK borrowing

UK borrowing is on course to hit an eye watering £130bn by the end of the financial year
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Economists warned on Tuesday the UK’s public finances are set to get worse after new official figures showed the country’s borrowing hit £13.5 billion in October.

Although the borrowing numbers were better than the City had expected, it was £4.4bn more than the same period last year and the fourth highest October figure on record.

The fresh data comes days after the Government’s fiscal watchdog, the Office for Budget Responsibility (OBR), said government borrowing for the year is set to be higher than it originally forecast in March.

The jump in borrowing, which takes total public sector net borrowing to £84.4bn in the seven months between April and October, was largely driven by the Government’s energy support schemes for households and businesses which came on stream last month.

The Office for National Statistics estimated that the Government spent on £3bn energy support schemes, including £1.9 billion for the £400 home energy discount payments.

With the Government committed to capping average energy bills for households at £2,500 a year until April and extending cost of living payments for the most vulnerable households, UK borrowing is on course to hit an eye watering £130bn by the end of the financial year.

The extra borrowing will add to Britain’s debt pile, which was £2.459bn at the end of October, around 97.5 per cent of GDP. Debt as a proportion of the UK’s output is at its highest level in decades.

Chancellor Jeremy Hunt defended the Government’s package of support but insisted it was “vital” to put Britain’s public finances back on a more sustainable path.

He said: “It is right that the Government increased borrowing to support millions of business and families throughout the pandemic and the aftershocks of Putin’s illegal invasion of Ukraine.

“But to tackle inflation and ensure the economic stability needed for long-term growth, it is vital that we put the public finances back on a more sustainable path.

“There is no easy path to balancing the nation’s books but we have taken the necessary decisions to get debt falling while actively taking steps to protect jobs, public services and the most vulnerable.”

Ruth Gregory, senior UK economist at Capital Economics, said the budget deficit was “now on a clearly deteriorating path and will only embolden the Chancellor to keep a tight grip on the public finances”.

Michal Stelmach, senior economist at KPMG UK, added: “The public finances continue to face a tug of war between demand for energy support and the overarching need to balance the books. As things stand, the headroom against meeting the new fiscal targets is hanging by a thread.”

The total cost of servicing Britain’s debt was £6.1bn in October as interest payments linked to soaring inflation remained extremely high. More than half of that was linked to inflation, the ONS said.

In the seven months to the end of October, interest on Government borrowing came in at £63.3bn - an increase of 55 per cent compared to last year.

The OBR estimated last week that higher interest rates mean that the cost of servicing Government debt will double to over £120 million next year and make public finances "more vulnerable to future shocks".

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