Ahead of today’s much-anticipated Spring Statement, Chancellor Rachel Reeves is facing another setback, as government borrowing exceeded expectations.
According to the latest figures, public sector borrowing reached £10.7 billion last month, marking it as the fourth-highest February figure on record.
This is significantly higher than the £7 billion analysts had predicted.
With the year-to-date borrowing now at £132.2 billion, it has surpassed the Treasury’s forecast by a staggering £20.4 billion.
Challenges Behind the Borrowing Surge
The sharp increase in borrowing is primarily attributed to higher spending on public services, which includes pay rises and social benefits.
Despite a rise in tax revenues compared to last year, the government’s spending has far outpaced expectations, signaling a deeper financial strain than anticipated.
The latest Office for National Statistics (ONS) data paints a grim picture for the Chancellor, highlighting the difficult decisions she will have to make when delivering her fiscal statement today.
The Strain on Government Finances
While these figures won’t impact the Office for Budget Responsibility’s (OBR) new forecasts for the Spring Statement, they provide a clear indication of the government’s ongoing fiscal struggles.
Experts predict that Chancellor Reeves may need to fill a significant gap, possibly up to £10 billion or more, despite already introducing £5 billion in cuts to benefits.
The news comes amid a slowing economy and rising debt interest costs, with fears that global events, such as trade issues and international tensions, could further worsen the situation.
Spending Cuts and Public Pushback
Chancellor Reeves has already ruled out tax increases at this time, meaning she will likely need to find savings through spending cuts.
However, this approach is set to face resistance from Labour MPs, who are gearing up to oppose anything resembling austerity.
Chief Secretary to the Treasury, Darren Jones, emphasized that the government must focus on creating a more agile and productive state to meet the nation’s needs, and he announced that the public sector will now go through every penny of taxpayer money to ensure it’s spent efficiently.
Rising Costs and the Need for Reforms
The ONS reported that public sector borrowing in February was just £100 million more than last year, but borrowing for the financial year to date is up nearly £15 billion.
Central government spending rose by £2.9 billion to £36.6 billion, driven by inflation and pay increases.
As the Chancellor prepares to address the public’s concerns, experts like Isabel Stockton of the Institute for Fiscal Studies (IFS) have pointed out that the forecast will need to account for the cost of recent welfare reforms, which may have unforeseen impacts.
Looking Ahead to the Spring Statement
Alison Ring, Director of Public Sector and Taxation at ICAEW, noted that the Chancellor would likely be disappointed that late self-assessment tax receipts weren’t enough to offset the rise in public spending.
While today’s data won’t influence the OBR forecast directly, it is expected to affect the Chancellor’s strategy when deciding how to handle public spending in the upcoming three-year Spending Review.
The key question now is whether these figures will pressure the government to introduce further tax hikes or make deeper cuts.