Government Borrowing Under the Microscope

The Institute for Fiscal Studies are estimating that there is a 90% chance that UK government borrowing will exceed that of the OBR’s forecast for the 2027/28 tax year. The IFS continued by suggesting that borrowing would be £40bn more than expected, meaning that the UK’s budget deficit would be equivalent to 3.1% of GDP, having been upwardly revised from 1.7%.

Writing in an article titled ‘Chancellors’ asymmetric responses to good and bad news since 2010 resulted in more debt and a bigger state’, the IFS argue that in instances where public finances have deteriorated those heading up No.11 “have tended to accept higher borrowing, rather than announce offsetting tax rises or spending cuts”. As such, borrowing has risen far higher than expected.

UK government borrowing has been brought sharply into focus over the last few quarters, not least because of spending on Covid support measures and energy subsides. Indeed, for the 2022/23 financial year, government borrowing exceeded £125bn, equivalent to 5.1% of GDP.

Earlier this year, the UK’s debt-to-GDP also exceeded 100% for the first time since 1961. With government borrowing in May 2023 double that of May 2022, the growing budget deficit continued to feed into the UK’s national debt pile, which now stands at £2.6tn. Following this milestone in May, the OBR stated in July that “UK government borrowing costs have risen more than in any other G7 economy and been more volatile than at any time in the past 40 years”. Their report noted that this time last year – a period underpinned by the market’s rejection of Truss and Kwarteng’s mini-budget – saw a particularly high period of volatility for government gilts.

All eyes are now on the Chancellor Jeremy Hunt for his latest Autumn Statement, where the date has been confirmed as 22 November. Here, the OBR have been commissioned to prepare an economic and fiscal forecast to be presented to Parliament alongside his Autumn Statement.