Public debt casts shadow over Chancellor’s set piece

The Chancellor will make his Autumn Statement next week. Picture: Getty

Government borrowing ballooned to £8.2 billion last month, the worst October for the public finances since 2009, throwing a cloud over Chancellor George Osborne’s Autumn Statement next week.

Latest figures from the Office for National Statistics (ONS) yesterday showed public sector net borrowing, excluding banks, was £1.1bn higher than in October last year.

Howard Archer, chief UK economist at IHS Global Insight, said the news would be “very disappointing and difficult” for Osborne, who delivers his Statement on Wednesday.

“Not only did public finances deteriorate year-on-year in October, but it now looks hugely difficult for the Chancellor to meet his fiscal targets contained in July’s budget,” Archer said.

Looking at the current financial year, public borrowing between April and October stood at £54.3bn, which is only £6.6bn down compared with the same period last year.

As a result, PwC chief economist John Hawksworth warned the government was set to overshoot the spending forecasts of the independent Office for Budget Responsibility (OBR).

“Today’s public finance data were a little disappointing for the Chancellor,” Hawksworth commented. “Monthly data can be volatile, but the cumulative public borrowing total for the first seven months of the financial year was also only £6.6bn lower than a year earlier, as compared to an OBR forecast in July that borrowing for 2015/16 as a whole would be around £20bn lower than in 2014/15.

“Our estimates based on simple extrapolation from these data suggest that public borrowing could overshoot the OBR target by around £5 billion this year.”

Hawksworth said the government could yet make up this gap if self-assessment income tax receipts come in strongly in January, and the Treasury keeps departmental spending under tighter control for the rest of the year. “But it will be an uphill struggle,” he said.

The British Chambers of Commerce (BCC) was more positive. David Kern, chief economist at the BCC, said that while disappointing the higher-than-expected public borrowing was a “minor setback” ahead of the Chancellor’s statement.

“In this financial year so far the government is making progress in cutting the deficit, and there is still a realistic chance that they will achieve the target set in the July budget,” Kern said.

“It is vital for the government to persevere with its dual strategy of reducing the growth in current spending, while at the same time supporting business growth by investing in infrastructure, cutting red tape and driving exports.”