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£23.40Public borrowing in the UK increased to £13.7bn in August, the highest level for the month since the Covid-19 outbreak in 2020. The difference between government spending and tax revenue rose by £3.3bn from the same month last year, according to official figures from the Office for National Statistics (ONS). Although tax earnings grew during August, this was offset by increased benefits and higher public service spending on worker’s pay.
The ONS figures come ahead of the country’s budget release at the end of October, which has been described by Prime Minister Keir Starmer as “painful”. The government has already acknowledged that some taxes will need to increase, but officials have confirmed they will keep their manifesto promise to avoid increasing tax burdens associated with VAT, income tax, and national insurance for “working people”.
The latest figures reveal that public borrowing for the first five months of the fiscal year reached £64.1bn. This is £6bn above forecasts by the Office for Budget Responsibility, the department responsible for tracking UK government spending performance and plans. The increased borrowing in August has kept national debt at around 100% of the country’s annual economic output, as it was in the early 1960s.
Despite the government’s plan to avoid increasing burdens for working people, it has suggested that the economy needs to grow for the country to reduce its high debt levels. Chief economist at asset manager Allianz, Mohamed El-Erian, stated that the only answer to high debt levels is economic growth, otherwise the alternatives are painful both short-term and long-term. However, the latest figures revealed that the UK economy failed to grow in July, which is disappointing for the new government, who have made boosting the economy a priority.
The Bank of England has also revised down anticipated growth figures for the economy, causing speculation that Chancellor Rachel Reeves might alter the debt targets she pledged to maintain under her fiscal rules. Most governments in wealthy countries self-impose fiscal rules to maintain credibility with financial markets. The UK government had previously imposed a rule to manage its borrowing within a five-year timeframe, but this could change to afford itself more flexibility over tax and spending plans. The Chancellor has so far refused to rule out altering these rules
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