By David Milliken
LONDON (Reuters) – British public debt jumped unexpectedly last month to its highest level in all November, reflecting the rising cost of energy subsidies, the reversal of the rise in debt interest and payroll taxes, official figures released on Wednesday.
Borrowing rose to £22.0bn ($26.7bn) from £8.1bn a year ago – before the UK was rocked by rising natural gas prices that forced the government to subsidize the heating and electricity costs of millions of households and businesses.
Economists polled by Reuters had forecast a much smaller increase of £13.0 billion.
The news comes at a time when the government is facing a wave of strikes in the public sector, including nurses and ambulance drivers, and the rail industry, which relies heavily on subsidies.
Responding to the data, finance minister Jeremy Hunt reiterated that he does not want to change his spending plans. These are not allowing public sector salaries to keep up with inflation, which hit 41-year highs in October.
“We have a clear plan to help cut inflation by half next year, but that requires some tough decisions to put our public finances on a sustainable footing,” Hunt said.
Last month, the British government’s Office of Budget Responsibility (OBR) revised its 2022/23 borrowing forecast to £177.0 billion, or 7.1% of gross domestic product, from the previous estimate of £99.1 billion.
Borrowing seemed to increase even more under Hunt’s predecessor, Kwasi Kwarteng, who was forced to resign with then-prime minister Liz Truss in October after markets rejected the ‘Growth Plan’ and pushed the sterling to a record low.
GRAPHIC-UK borrowing hits record in November https://www.reuters.com/graphics/BRITAIN-ECONOMY/BORROWING/myvmooqmzvr/chart.png
Samuel Tombs, UK chief economist at Pantheon Macro Economics, said Wednesday’s data appeared roughly in line with the new OBR forecasts, but he was less confident that borrowing would fall as quickly as the OBR had predicted in the coming years.
“The volatile nature of the new fiscal targets and increasing demographic pressure suggest that plans for very modest real-term increases in departmental budgets by the mid-2020s will not be pursued,” he said.
Instead, Tombs said, borrowing will fall to only about 4% of GDP in the mid-2020s, rising above the government-set ceiling of 3%.
Public debt rose to 86.7% of GDP, or £2.176 trillion, in November, from 85.2% a year ago, or £2,024 trillion, by the government’s preferred measure that excludes public sector banks and Bank of England lending.
The Office for National Statistics (ONS) said borrowing so far this fiscal year is 6.7% lower than the £105.4bn between April and November 2021, but that improvement is quickly reversing.
The ONS estimated that new energy support measures cost around £7bn this month, while debt interest payments rose £2.4bn to 7.4bn from a year ago, partially attributable to the rising inflation rate.
In contrast, National Insurance contributions (NICs), one of the UK’s three main sources of tax revenue alongside income tax and value added tax, rose just 1.3% year-on-year in November, compared to 14.6% in financial insurance. It was well below the increase. year to date.
November marked a reversal of the rise in NICs that took place in April when Rishi Sunak, now prime minister, was finance minister. The increase was unpopular among Conservative Party members, and this was the main reason they chose Truss over Altar, to replace Boris Johnson as prime minister.
Kwarteng ordered the increase reversed after Truss appointed him finance minister, one of the few tax breaks Hunt had retained.
($1 = 0.8235 pounds)
(Reported by David Milliken; Edited by James Davey, Paul Sandle and Catherine Evans)