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Government borrowing rises ahead of Autumn Statement

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Government borrowing in October was higher than expected at £14.9bn, largely pushed up by higher benefit payments, official figures show.

But the figures showed a smaller-than-expected deficit across the first half of the financial year.

This was due to higher tax receipts in previous months, reflecting higher wages and inflation.

It comes as speculation mounts there could be tax cuts in the chancellor’s Autumn Statement on Wednesday.

Spending on cost of living payments and higher interest on public debt – the biggest of any October since monthly records began – meant the public finances saw a bigger shortfall than at the same point last year.

Borrowing was up £4.4bn from a year earlier and the second highest figure for October, behind only 2020’s figure when spending was affected by the pandemic.

The borrowing figure – the difference between spending and tax income – was also higher than the £13.7bn forecast by the UK’s independent fiscal watchdog, the Office for Budget Responsibility (OBR).

It was the first time borrowing has surpassed the OBR’s predictions this financial year.

But better-than-expected tax receipts earlier in the financial year have resulted in a smaller deficit overall than the OBR forecast at the time of the spring Budget.

The ONS said the government had borrowed £98.3bn in total since the start of the financial year. That is £21.9bn more than a year earlier, but less than the £115.2bn that was forecast by the OBR in March.

Responding to the latest borrowing statistics, Chancellor Jeremy Hunt said he would continue to support the Bank of England to drive inflation down to 2%.

“That means being responsible with the nation’s finances,” he added.

Bank of England governor Andrew Bailey said on Tuesday that inflation was on track to get back to the Bank’s target of 2%.

However, speaking to MPs on the Treasury Committee, he warned that there were risks “price growth could get stuck at a high level”.

The figures on the health of the public finances are mixed news for the chancellor as he puts the finishing touches to Wednesday’s Autumn Statement, and a reminder that he may opt not to give households large tax cuts yet.

Some economists think the chancellor will now meet his self-imposed rules on borrowing with around £20bn to spare, which has raised speculation of tax cuts.

“With the election drawing nearer, the chancellor may not be able to resist the temptation to unveil a pre-election splash,” commented Ruth Gregory at Capital Economics.

However, any pre-election splash in 2024 “will almost certainly be followed by hefty tax rises in 2025 after the election,” she added.

Sir John Gieve, a former deputy governor for fiscal stability at the Bank of England, said the government’s finances had been improved by higher wages and higher inflation, which had increased receipts from income tax and VAT .

“He hasn’t increased tax thresholds [on income tax]. The question is: Should he give a little of this back?” he asked.

But others expect the focus of Wednesday’s statement will be on helping business, with households perhaps having to wait until next spring for announcements on substantial giveaways.

Responding to the ONS data, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the latest figures provided “a timely reminder that the task of restoring the public finances to a sustainable footing is far from complete”.

He also predicted that the majority of any tax cuts announced in the Autumn Statement are not likely to come into effect until after the next general election

source by bbc news

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