UK public borrowing rises to £16.6bn in September, higher than official forecast, in sign of budget pressures – business live | Business

Cross-party MPs urge Reeves to impose 2% tax on wealth above £10m

Larry Elliott

A group of MPs are urging Rachel Reeves to impose a wealth tax on Britain’s rich in next week’s budget rather than announce spending cuts that would hit the most poor hardest.

In a letter to the chancellor, the MPs – including the former Labour leader Jeremy Corbyn and his then shadow chancellor, John McDonnell – say she could raise £24bn a year from a 2% tax on wealth above £10m and lay the foundations for a fairer, more sustainable economy.

The letter, organised by the campaign group Green New Deal Rising, says in contrast to the general trend, taxes on the very richest are only slightly more onerous than they were in the mid-1960s.

“This is deeply unfair and immoral: in an age of climate and economic crises, where public funds are desperately needed, it is necessary that we redress this imbalance. The transformative potential of taxes on extreme wealth is clear, and appetite for them is growing.”

Cara Pacitti, senior economist at the Resolution Foundation, says:

“Six months into the financial year, Britain is borrowing £6.7bn more than expected at the time of the Budget in March. This reflects central government spending which is £11.5bn higher than anticipated, largely due to public sector pay rises and higher running costs.

“Today’s data highlights the scale of the public finances challenges facing the Chancellor as she grapples with overspending today, the need to avoid austerity in the future, and having to fund extra public service spending through tax rises.”

The Resolution Foundation explain that this morning’s data shows that central government spending is already £11.5bn above the OBR’s March forecast

Most of that comes from spending on good and services, typical higher pay and running costs, which they say “tallies with the £22 billion ‘black hole’ identified by the Treasury back in July.”

Darren Jones, chief secretary to the Treasury, says the government was right to agree public sector pay deals last summer, even though they pushed up government spending (see earlier post):

“We have inherited a £22 billion black hole in the country’s public finances, including no plan to fund pay deals for millions of public sector workers. Strikes cost at least £3 billion last year, so it was the right thing to do to end those damaging disputes.

Resolving this blackhole at the Budget next week will require difficult decisions to fix the foundations of our economy and begin delivering on the promise of change.”

As a share of the economy, the UK’s national debt is the highest since the early 1960s.

The Office for National Statistics reports that public sector net debt excluding public sector banks was provisionally estimated at 98.5% of gross domestic product (GDP) at the end of last month.

That’s an increase of 4.0 percentage points more than at the end of September 2023.

However, it’s a little lower than in August, when the debt/GDP ratio was 98.8%. And that has beren revised down from an initial estimate of 100%.

Jeremy Hunt’s cuts to national insurance hit the government’s tax take last month, today’s public finances report shows.

The ONS says that compulsory social contributions decreased by £0.9bn to £13.9bn in September, “largely because of the reductions in the main rates of National Insurance in early 2024”.

So far this financial year (since April), compulsory social contributions are down by £5.2bn to £82.1bn.

Hunt cut 2p off national insurance from January, and followed this up with a second 2p cut in April, which brought the main rate of national insurance contributions (Nics) paid by workers down to 8%.

In April, The Treasury says that the average worker on £35,400 will save more than £900 a year as a result of the cuts in January and April.

Having promised not to raise taxes on ‘working people’, Reeves can’t really reverse Hunt’s cuts to. But, she has strongly hinted that she could raise employer national insurance contributions.

Public sector pay rises also added to government spending – and thus borrowing – last month.

Today’s public finances report says:

Central government departmental spending on goods and services increased by £2.6bn to £35.9bn, as pay rises and inflation increased running costs

Shortly after taking office, the Labour government settled pay claims with junior doctors, and with train drivers, to end industrial action that had been hurting the economy.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Britain’s government borrowing rose faster than official forecasts expected in September, in a timely reminder of the challenges facing Rachel Reeves as she prepares to deliver the budget next week.

The UK borrowed £16.6bn last month to cover the difference between public sector spending and income. That’s £2.1bn more than in September 2023 and the third highest September borrowing since monthly records began in January 1993.

Significantly, it’s also £1.5bn higher than the £15.1bn borrowing forecast by the Office for Budget Responsibility (OBR) for September, a sign that higher borrowing is adding to the chancellor’s challenge of raising money for public services without breaking pledges not to raise certain taxes.

However, it’s a little lower than the £17.5bn which City economists had forecast.

So far this financial year, the UK has borrowed £79.6bn, which is £1.2bn more than at the same point in the last financial year

That is £6.7bn more than the £73bn forecast by the Office for Budget Responsibility for this period. We’ll get the OBR’s new forecasts in just over a week’s time, after Reeves delivers the budget.

The latest public finances show that central government’s receipts were £80.7bn in September, £3.3bn more than in September 2023.

But that was overtaken by higher spending; central government’s total expenditure was £93.7bn in September, £5.5bn more than in September 2023.

Reeves is in Washington DC for the annual meetings of the International Monetary Fund and World Bank, where finance ministers, central bank governors, thinktank chiefs and charity bosses will discuss the state of the global economy and its ability to generate a higher standard of living.

We’ll hear from the IMF, and from Bank of England governor Andrew Bailey, later today.

The agenda

• 7am BST: UK public finances for September

• 7am BST: European Union car sales for September

• 2pm BST: IMF to publish World Economic Outlook

• 2.25pm BST: Bank of England governor Andrew Bailey gives a keynote address at the Bloomberg Global Regulatory Forum

• 3.15pm BST: IMF to publish Global Financial Stability Report