According to the most recent figures released by the Office for National Statistics, September saw a significant rise in the UK’s levels of public borrowing. The government borrowed £11.8 billion, which is a year-on-year increase of £1.6 billion compared to September 2013.
The increase goes against expectations, as economic experts were predicting that public borrowing would remain flat. It also represents bad news for George Osborne (pictured right). In March, the Chancellor pledged that, over the course of a year, he would slice 10% off the budget deficit. This plan has since consistently struggled to get off the ground, with the latest figures forming a fresh blow.
Total borrowing for the financial year up to September came in at approximately £58 billion. Compared to the equivalent portion of the 2013/2014 financial year, this represents a year-on-year increase in borrowing of £5.4 billion or 10.3%.
According to economists, the government will certainly feel the effects of this situation of increased borrowing. As the general election approaches next year, they are likely to find themselves with only limited options. According to Capital Economics senior economist Samuel Tombs, “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.”
Furthermore, Tombs believes that in the Autumn statement, which is due for December, “the chancellor will be forced to acknowledge… that the fiscal consolidation is not going to plan.”
These sentiments were echoed by Chris Leslie, the shadow chief secretary to the treasury, who described the increase in borrowing as “a serious blow to George Osborne.” Leslie went on to say that the figures have left Osborne “set to break his promise to balance the books by next year.”
The need for greater volumes of borrowing comes in part from lacklustre income tax receipts. For the first half of the 2014/2015 financial year, the year-on-year increase in income tax receipts stood at a mere 0.1%. This, according to IHS Global Insight chief economist Howard Archer, is down to a number of factors such as weak earnings growth and the fact that “much of the employment growth has been in low paid jobs or in self-employment.” The fact that the personal allowance has increased during the current government’s term has also had an impact on income tax.
A spokesperson for the Treasury acknowledged that the figures were less than ideal. The spokesperson admitted that “the impact of the great recession is still being felt in our economy and the public finances” and that “we have to recognise that the UK is not immune to the problems being experienced in Europe and other parts of the world economy.”