Rachel Reeves is having to borrow more money than even the worst estimates expected. Figures on the public finances, published this morning by the Office for National Statistics (ONS), show that in the financial year to January we borrowed over £118 billion. This is £11.6 billion more than at the same point in the last financial year and is the fourth highest borrowing period since comparable records began in 1993. The Office for Budget Responsibility (OBR) had expected borrowing to be some £13 billion lower by this point in the year.
This news puts even more pressure on the Chancellor who, reports now suggest, has blown her fiscal headroom and failed to stick to her fiscal rules. She faces the choice of taking Britain’s tax burden even higher than the post-war high it will reach according to current plans, having to slash public spending – or most likely both.
January figures usually bring good news for the Treasury as self-assessment tax returns flood in. Reeves has, as a result, experienced the largest January surplus since records began. The ONS’s figures show the public sector was in a £15 billion surplus last month – £0.8 billion larger than last year. Successive decisions to take the tax burden to its highest post-war level are reaping rewards for the Treasury as HMRC recorded some £36.2 billion in income from self-assessed and capital gains tax receipts in January. That’s nearly £4 billion more than was raised last year and the highest January tax take since records began.
However, the self-assessed tax take of just under £26 billion was £3 billion less than the OBR was hoping for. Capital gains taxes also brought in over £1 billion less than the OBR expected. All this eats into any fiscal wiggle room the Chancellor had left.
Labour insists it is going ‘through every pound spent, line by line’ to meet its priorities. This newfound commitment to cutting waste and improving efficiency is welcome, but today’s borrowing figures don’t require forensic analysis – they’re written in bold across the balance sheet. The government is spending too much and propping it up with unsustainably high levels of debt. Only a major rethink about what the state does and doesn’t do will fix that.
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