Doubts have been raised over the government’s ability to unveil tax cuts ahead of the next general election after official figures revealed borrowing was higher than expected in the past year.
The Treasury borrowed £120.7bn in the financial year ending March 2024 – down £7.6bn from the year before, according to provisional estimates from the Office for National Statistics (ONS).
However, the figure is £6.6bn more than forecast by the Office for Budget Responsibility (OBR) only a month ago.
Overall, government debt was around 98.3% of the UK’s annual gross domestic product (GDP) in March – up 2.6 percentage points from the previous year and at levels not seen since the early 1960s.
Ruth Gregory, an economist from Capital Economics, said: “If the chancellor was hoping March’s figures would provide more scope for tax cuts at a fiscal event later this year, he will have been disappointed.
“Just based on the larger-than-expected 2023/24 budget deficit and the recent shift up in market interest rates, he may have even less fiscal ‘headroom’ (perhaps about £5bn) for tax cuts than the £8.9bn left over in March.”
Rob Wood, from Pantheon Macroeconomics, said he still expected the chancellor to cut taxes, but warned it would leave a financial headache for the Treasury after the next election, which is expected in the autumn.
He said: “[Jeremy] Hunt can plan for another year of unrealistically weak public spending to generate ‘headroom’ against his fiscal rules and thereby manufacture the funds to cut taxes.
“The next government will, therefore, face a tricky choice between raising taxes to fix creaking public services or holding the line on the chancellor’s recent tax cuts.”
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Jessica Barnaby, the ONS’s deputy director for public sector finances, said: “Spending was up about £58bn, with increased spending on public services and benefits outstripping large reductions in interest payable and energy support scheme costs. But with public sector income up £66bn, overall, the deficit still fell.
“At the end of the financial year, debt remained close to the annual value of the output of the economy, at levels last seen in the early 1960s.”
The figures also revealed that benefit payments increased by £36.9bn to £291.4bn during the year, amid inflation-linked increases and extra cost of living support.
Central government wages rose by £21bn, including health and education, but inflation-linked debt fell 27% to £78.3bn.
Receipts from inheritance tax also climbed to a record high of nearly £7.5bn.
A spokesperson for the Treasury said: “Debt increased in recent years because we rightly protected millions of jobs during COVID and paid half of people’s energy bills after [Vladimir] Putin’s invasion of Ukraine sent bills skyrocketing.
“We can’t leave future generations to pick up the tab, so we must stick to the plan to get debt falling. And with inflation falling and wages rising – we have been able to cut national insurance by a third, which shows our determination to end the double taxation of work”.
Source Agencies
