The UK government borrowed £18.3bn in August, almost a fifth higher than the year before and £3.5bn more than official forecasters expected. The borrowing surge comes as inflation rose to its highest rate in five months, driven up by higher petrol and diesel prices, and as the cost of servicing government debt hit a record level.
Since records began in 1997, the government has never had to pay more interest on its debt in August. That figure now stands at £8.8bn, and it comes at a time when the government is under pressure to increase spending on defence and support for households struggling with the cost of living.
The numbers and what they mean
The borrowing figure came in at £18.3bn, which was £3.5bn above what the official forecast had predicted. Roughly a quarter of all interest payments on public sector debt in the UK are tied to the Retail Prices Index, a measure of inflation that tends to run higher than the Consumer Prices Index, which is used for the country’s headline inflation measure.
The year to August saw consumer price inflation reach its highest level in five months, rising to 3.1%, with the conflict between the US and Israel in Iran contributing to the increase.
What the experts say
Martin Beck, chief economist at WPI Strategy, said it was important not to “overinterpret a single month given the volatility in the numbers” but added there were “concerning elements”. He said the cost of paying the interest on government debt is likely to rise in the coming months.
Nick Ridpath, a research economist at the Institute for Fiscal Studies (IFS), described spending on debt interest as “a worryingly large share of overall government spending and has been pushed up”.
Ruth Gregory, deputy chief UK economist at Capital Economics, called it a “dismal backdrop for the autumn Budget, with the government once again borrowing more than expected”. Gregory warned the figures raise the likelihood of many of Prime Minister Andy Burnham’s policy ambitions being “reined in or delayed to avoid big tax hikes and/or a backlash in the markets”.
The economy is weakening, and Gregory warned that this trend means the government will probably keep borrowing more than expected.
The political fight
Emma Reynolds, chief secretary to the Treasury, said the UK has “huge potential” for economic growth, but only with “fiscal discipline” from the government. Reynolds said the government is committed to its fiscal rules “with a buffer against uncertainty”.
Conservative shadow chancellor Andrew Griffith said the Labour government had “lost control of the public finances” by overshooting the OBR’s forecasts. Experts think the chancellor may have to find £15bn, perhaps through tax rises, to meet the government’s self-imposed spending rules.
What happens next
The rise in borrowing is increasing the pressure on the chancellor ahead of the autumn Budget. Defence spending and cost-of-living support are both expanding, leaving the government’s room for manoeuvre ever narrower.
“The cost of that interest has gone up. That’s going to feed through into more borrowing.”
The government has built its own debt problem, and now comes the bill. The open question is whether it can meet its own fiscal rules without raising taxes or cutting spending.
Schedule of upcoming events
| Date | Event |
|---|---|
| Before the autumn Budget | The chancellor may have to find £15bn |
| Before the autumn Budget | Experts think the chancellor may need to raise taxes or cut spending |
| Before the autumn Budget | Prime Minister Andy Burnham’s policy ambitions may be reined in or delayed |
Where the paper stands
The paper backs any plan that gives taxpayers real control over where tax money goes and is against the borrowing surge, the record debt interest, and the pressure to increase spending, with no one voting line by line on where it all ends up. August’s £18.3bn borrowing figure, almost a fifth higher than the year before, and the record £8.8bn in debt interest payments that came with it, show the government piling more debt on top of its own, with no direct say from the people who pay it.
This is money vanishing into a budget nobody voted on line by line, and the paper is against that. The record interest payments show the bill for past borrowing has arrived, and the government has no way to vote it down.
What the reader should watch for is how the government responds to the pressure from the £15bn shortfall experts think it needs. The paper wants any plan that gives taxpayers real control over where that money goes, not another round of borrowing or silent budget increases that pile debt on top of debt.
Source material: “Unexpected UK borrowing surge adds to pre-Budget pressure on chancellor,” the BBC.
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