The state of Britain’s finances deteriorated unexpectedly in September, pushing the deficit 10% higher in the first half of the year and leaving the chancellor further off course in his deficit reduction plans.
Borrowing last month totalled £11.8bn, £1.6bn higher than September 2013 and more than a billion higher than City economists were forecasting, as government spending increased more than the value of its tax receipts.
The public finances have been consistently weaker than expected in recent months according to the Office for National Statistics data.
In the first six months of fiscal year, between April and September, borrowing totalled £58bn, up £5.4bn or almost 10% compared with the first half of last year. Chris Leslie MP, Labour’s shadow chief secretary to the Treasury, said: “These figures are a serious blow to George Osborne. Not only is he set to break his promise to balance the books by next year, but borrowing in the first half of this year is now 10% higher than the same period last year. As the OBR said last week, stagnating wages and too many people in low-paid jobs are leading to more borrowing.”
Higher borrowing in September puts George Osborne at increased risk of missing his official target of reducing borrowing to £95.5bn in 2014-15, down from £105.8bn in 2013-14.
Samuel Tombs, senior UK economist at Capital Economics, said the poor state of the public finances left the chancellor with little room to announce pre-election giveaways.
He said: “The continued run of poor UK public borrowing figures looks set to severely hamper the chancellor’s ability to announce giveaways to address his party’s deficit in the national opinion polls before next year’s general election.
“The chancellor will be forced to acknowledge in December’s autumn statement that the fiscal consolidation is not going to plan, limiting his scope to announce pre-election sweeteners.”
Tax receipts actually increased in September, by £1.4bn compared with the same month last year, to reach £46bn, but borrowing rose because government spending increased by £2.9bn to £56.4bn. Higher welfare spending, increased spending by government departments, and higher investment all contributed to the rise in government spending.
The national debt is now £1.45tn, representing almost 80% of gross domestic product and more than £100bn higher than the same point last year.
Despite the surprise increase in the deficit, a spokesman for the Treasury insisted the “government’s long term economic plan is working”, with the UK economy growing faster than that of its G7 peers.
He added: “We have seen stronger growth in receipts this month, but as today’s figures show, the impact of the great recession is still being felt in our economy and the public finances. At the same time, we have to recognise that the UK is not immune to the problems being experienced in Europe and other parts of the world economy.”
