A significant uptick in government borrowing costs, driven by pay rises for public sector workers and escalating debt payments, has heightened the possibility of future tax increases, warn economists.
Last month saw borrowing climb to £17.4bn, the second highest figure for October since records began on a monthly basis, as per the latest official data.
The Office for National Statistics (ONS) reported that public sector net borrowing was £1.6bn above the figure from the same month last year. This rise coincides with the first set of borrowing figures released following the Government's substantial spending announcements in the autumn Budget last month, as reported by .
This spike in borrowing spells new trouble for the government and Chancellor Rachel Reeves, especially in a week when inflation figures have exceeded the Bank of England's target, prompting policymakers to signal a slower pace in reducing borrowing costs.
Although the current borrowing statistics precede the Budget announced on 30 October, the Chancellor is now likely to face scrutiny over her financial strategy and may need to contemplate further tax hikes down the line, suggest experts at Capital Economics.
"October's disappointing public finances figures underline the fiscal challenge that the Chancellor still faces, despite the big increases in spending and taxes announced in the Budget," commented Alex Kerr, an economist at the research firm.
"And while the Chancellor has downplayed the chances of further tax-raising measures, if she wants to increase day-to-day spending in future years, she may need to raise taxes to pay for it."
The crux of the borrowing surge lies in the escalating costs of servicing government debt and a sharp spike in public sector salaries.
According to the ONS, central government departmental expenditure on goods and services witnessed a £2.5 billion jump to £36.9 billion in October, primarily driven by "pay rises and inflation increased running costs".
This uptick encompasses the repercussions of above-inflation pay deals unveiled following the Labour Government's ascension to power in July, with NHS personnel and educators receiving retroactive pay hikes starting last month.
Sandra Horsfield, an economist at Investec, weighed in: "The bulk of the extra spending came from higher expenditure on goods and services, in turn attributed not just to inflation but also to public-sector pay rises,".
She added, "On a monthly basis, current expenditure on goods and services is certainly volatile, even in year-on-year comparisons. Nevertheless, it is noteworthy that the trend since May has been for higher year-on-year spending growth in this category, in an environment where inflation itself has fallen."
Since unveiling her first Budget on 30 October, the Chancellor has consistently maintained she won't pursue higher taxes or increased borrowing in case tax income doesn't meet expectations. However, experts at the IFS caution that without some economic fortune, the government might need to generate extra funds.
Darren Jones, Chief Secretary to the Treasury, asserted: "This government will never play fast and loose with the public finances."
He further pledged, "Our new robust fiscal rules will deliver stability by getting debt down while prioritising investment to deliver growth."
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