UK Government Borrowing Exceeds Expectations in October, Driven by Record Debt Interest and Public Sector Wage Hikes

Government borrowing in October was considerably higher than anticipated, as debt interest payments reached an unprecedented monthly high and public sector pay increases contributed to elevated expenditure. The borrowing total, which represents the gap between government spending and tax revenue, amounted to £17.4 billion last month. This figure marks the second-highest October total since monthly records began in 1993. These borrowing statistics are the first to be released since Chancellor Rachel Reeves’ initial Budget last month, which outlined plans for increased spending and higher taxes. However, analysts noted that the worse-than-expected borrowing figure underscored the challenges the chancellor faces in maintaining control over public finances. The borrowing data is the latest in a series of difficult economic reports for the government. Inflation figures published on Wednesday indicated that prices were rising faster than projected, while the previous week revealed that the economy experienced minimal growth between July and September. Additionally, the chancellor has faced pressure from businesses and the farming community to reverse some of the tax increases announced in the Budget. Questions have also been raised regarding Reeves’ curriculum vitae, following allegations that she had embellished some of her past achievements. The Office for National Statistics (ONS), which compiled the figures, reported that government revenue had increased last month, despite the reduction in National Insurance rates earlier in 2024. “However, with spending on public services, benefits and debt interest costs all up on last year, expenditure rose faster than revenue overall,” stated Jessica Barnaby of the ONS. Interest payments on government debt reached £9.1 billion last month, marking the highest October figure since monthly records commenced in 1997. The ONS figures also indicated that government spending on pay increased by £2.2 billion from a year earlier, reflecting some of the impact of the latest public sector pay agreements. Upon assuming power, Labour announced above-inflation, backdated pay increases for NHS staff and teachers, which became effective in October. Borrowing for the financial year up to October has now reached £96.6 billion, according to the ONS, which is £1.1 billion more than at the same point last year. Chief Secretary to the Treasury Darren Jones commented that Labour had inherited a difficult economic situation following the election, and the Budget was aimed at “fixing the foundations and putting public finances on a sustainable footing.” He added, “This government will never play fast and loose with the public finances. Our new robust fiscal rules will deliver stability by getting debt down while prioritising investment to deliver growth.” Shadow chancellor Mel Stride asserted that the scale of borrowing last month was “a direct result of Labour’s decision to hand out inflation busting pay rises to their union paymasters without any reforms in return.” Alex Kerr, a UK economist at Capital Economics, stated that October’s “disappointing” borrowing figures demonstrated “the fiscal challenge that the chancellor still faces,” indicating that Reeves has “little wiggle room.” He further remarked, referring to the chancellor’s self-imposed targets, “While the chancellor has downplayed the chances of further tax-raising measures, if she wants to increase day-to-day spending in future years, she may need to raise taxes to pay for it.” According to the Office for Budget Responsibility, last month’s Budget is projected to increase government spending by almost £70 billion annually over the next five years, with half of this funded through higher taxes and the remainder through increased borrowing. The ONS reported that net debt – the total amount of money owed by the government that has accumulated over years – had reached £2.8 trillion. This sum represents 97.5% of the size of the UK’s economy as measured by gross domestic product (GDP), and remains at levels last observed in the early 1960s. During the Budget, Reeves amended the government’s public finance rules, which will now track a broader measure of debt to provide more flexibility for investment-related borrowing. This new debt measure, known as public sector net financial liabilities (PSNFL), stood at 83.7% of GDP in October, the ONS confirmed. The government aims for this measure of debt to decrease as a share of the economy by the 2029-30 financial year.