UK Government Borrowing Hits Post-Pandemic High Amid Public Sector Pay Rises and Soaring Interest Costs

UK government debt in September reached its third highest level for the month historically, driven by increases in public sector salaries and elevated interest costs on accumulated debt.

Business correspondent @taaffems

Tuesday, October 22, 2024 10:17

According to official data, government debt has surged to levels not seen since the pandemic, fueled by increases in public sector salaries and rising borrowing costs.

According to the latest figures from the Office for National Statistics (ONS), last month's borrowing was the third highest for September, surpassed only by the amounts recorded in 2020 and 2021.

Revenue from taxes rose, but this was outstripped by greater expenditures that the Office for National Statistics attributed in part to rising interest rates on debt and increases in public sector salaries.

In September, expenditures rose by £2.1 billion compared to the same month the previous year, according to recent data.

Since the Labour Party took power in July, public sector employees like teachers and junior doctors have agreed to salary increases, while elevated interest rates imposed by the Bank of England to combat inflation have raised the cost of borrowing.

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The difference between the government's revenue and its expenditures was smaller than anticipated by some observers.

In-Depth on Debt

'The outlook is bleak,' says Ed Conway regarding the condition of government finances.

Government debt has exceeded forecasts and reached its peak since the pandemic due to increases in public sector wages.

Government debt exceeds projections, casting uncertainty on tax reductions before elections.

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Economists surveyed by Reuters had projected that public sector borrowing might hit £17.5 billion, yet it actually amounted to £16.6 billion. This figure does not include the borrowing of public sector banks.

Contrary to expectations, the Office for Budget Responsibility (OBR), a group of independent forecasters, found that the figures exceeded their projections by £1.5 billion.

Benefit disbursements decreased by £2 billion following the reduction of the automatic winter fuel allowance for retirees and the conclusion of unique cost of living subsidies. Although the benefits are distributed in November, the decisions regarding payments and qualifications are made in September.

What is the government's statement?

Treasury chief secretary Darren Jones justified the salary increases, arguing that strikes would inflict greater economic damage.

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"He stated that ending the costly strikes, which amounted to a minimum of £3 billion in losses last year, was the correct action to resolve those harmful conflicts."

"The nation's public finances are burdened with a £22 billion deficit, with no existing strategy to cover salary agreements for numerous public sector employees. Addressing this deficit in the upcoming budget will necessitate tough choices to repair our economic base and start fulfilling the commitment to transformation."

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