UK Government Borrowing Jumped in September but Won't Prevent More Spending Up Ahead
- Written by: James Skinner
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Image © Adobe Images
- Gov borrowing rises in September for first time in five years.
- Borrowing rises to £9.4 bn on higher government spending.
- Borrowing in current financial year up by £7.4 bn at £40.6 bn.
- Treasury expected to up spending further, as election looms.
The public finances deteriorated in September for the first time in five years after income growth failed to match an increase in government spending, leading to higher borrowing at the end of the third quarter, a first since 2014.
Borrowing was £9.4 bn last month when loans taken on behalf of public sector banks are excluded, which is up £0.6 bn when compared with the same period one year ago and takes borrowing for the financial year-to-date up to £40.6 bn. Borrowing has now risen £7.2 bn when the opening months of the financial year are compared with the same period of 2018. The Office for National Statistics (ONS) says this is the first April-to-September increase for five years.
September's borrowing saw public debt rise to £1.79 trillion when borrowings associated with public sector banks are excluded from the numbers, which is equal to 80.3% of GDP and reflects an increase of £27.3 bn over the year. However, the ONS says the debt-to-GDP ratio fell by 1.2% over the period, presumably because the economy grew faster than borrowing when it comes to percentage points of GDP.
Despite the increase in borrowing last month, the government's funding requirement was lower than it would have been if not for the 62.4% taxpayer stake in Royal Bank of Scotland, which is gradually being sold down. The Treasury received a £1.1 bn dividend from RBS last month although central government still accounted for £8.8 bn of the £9.4 bn of public sector borrowing last month. Local government borrowed £1.3 bn last month and the Bank of England (BoE) reported a surplus of £0.9 bn.
"We already know that the Chancellor wants to review the fiscal rules in the Budget on 6th November as there is very little chance of hitting the current ones. We don’t know what the new fiscal rules will be, but they are likely to allow for a substantial loosening of fiscal policy at the Budget, which would support economic growth. Of course, whether this happens depends on whether there is a Brexit deal," says Thomas Pugh, an economist at Capital Economics.
Tuesday's figures come just weeks ahead of the maiden budget statement of Chancellor Sajid Javid, who will present Treasury spending plans to parliament on November 06. The Chancellor is expected to set out government spending plans for the year ahead including those relating to spending in the now-unlikely event of a "no deal' Brexit.
The update from the Chancellor will come as expectations of a general election mount. With government and parliament having made a hash of the UK's belated exit from the European Union, speculation is that voters could be called back to the ballot box for a third time in five years before the year is out, which could mean the Chancellor loosens the purse strings in an effort to position the Conservative Party for an election campaign that might be fought on a public investment, or simply anti-austerity ticket.
The OBR forecast in March that full-year borrowing would rise by 24% in 2019, although some economists say the government's forays into the debt market are likely to have increased even more than that by the time the curtain closes on the current financial year.
"Borrowing in all years was revised up last month. Accordingly, full-year borrowing will total £50.3B in 2019/20, or about 2.3% of GDP, if the current trend is maintained, greatly exceeding the OBR’s Spring Statement forecast," says Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
UK national debt and government borrowing figures could increase at a faster pace in the months and quarters ahead than they have done previously due to changes in accounting rules that mean student loans are now treated differently. The changes began entering into effect in the private sector back in January 2018 but it wasn't until September 2019 that government borrowing statistics began to reflect the changes.
International Financial Reporting Standard 9 (IFRS 9) has forced companies to move from a system where they only recorded in their financial statements any 'recognised losses' on loans and investments, to one where they now have to also report 'expected losses'. This has implications for the way the government records borrowings related to student loans, some of which are almost always written off for various reasons.
The Office for Budget Responsibility (OBR) has said previously that borrowing would likely rise 24% in 2019, partly because of the changes, and the ONS said Tuesday that £2.7 bn of September's resulted frpm the writing off of student loans. Such write-offs will also impact the figures every January and April while borrowings associated with winter fuel payments, which were £2 bn last month, will also impact the numbers every September.
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