The Government borrowed less than expected in October but deficit reduction is still behind schedule, official figures released today show. The numbers highlight the problems facing Chancellor Philip Hammond as he prepares for Wednesday’s Autumn Statement.
Public sector net borrowing, excluding the bailed out banks, came in at £4.8 billion, down from £6.4 billion in October last year but the total for the first seven months of the financial year stands at £48.6 billion - substantially more than targeted in March before the Brexit vote.
If borrowing continues at this pace it will hit £68.2 billion in 2016/17 compared to the Office of Budget Responsibility’s March forecast of £55.5 billion.
On Wednesday, Hammond is expected to reveal a £100bn black hole in the budget over the next five years. The amount would represent the biggest deterioration ever seen in the public finances.
The total public debt pile now stands at £1.6 trillion, or 83.8 per cent of GDP. Hammond has said he aims to “reset” Britain’s post-Brexit economy, meaning a sharp break from predecessor Geaorg Osborne’s austerity policies and towards greater public investment. The increase in debt will give him little room for manoeuvre on this front.
In order to provide much stimulus to the economy, the Chancellor would have to present a far more optimistic picture of the UK’s economic outlook than many analysts would think plausible.
"The chancellor's warning at the weekend that he is 'highly constrained' suggests that there will be few sweeteners for the 'JAMs'—people 'just about managing'—in tomorrow's Autumn Statement," said Samuel Tombs of Pantheon Macroeconomics.
Howard Archer of IHS said: “Despite October’s marked improvement, the public finances over the first seven months of fiscal year 2016/17 (April-October) were still well off the target contained in last March’s budget.
"And of course, expected markedly slowing growth over the coming months will take a toll on tax receipts - although this is likely to show up more after the current fiscal year."
The chancellor could also face the combined problems of higher costs and lower tax receipts. Inflation is expected to rise sharply as the weakened pound begins to make goods more expensive and economists also forecast a marked slowdown in growth, meaning tax receipts would suffer.
