UK government borrowing increases as energy assistance scheme kicks off

UK government borrowing increased in October as the energy support scheme for homes and businesses was launched.

Government borrowing rose to £13.5 billion ($16 billion) in October, according to data released by the Office for National Statistics (ONS) on 22 November.

The figures were £4.4 billion ($5.2 billion) higher than the same month last year and the fourth highest for October since monthly records began in 1993, according to the ONS.

The increase in borrowing is due in part to the government’s plans to assist households and domestic energy suppliers with energy, bringing current spending to the central government to £76.8bn ($91bn), down from last month’s £6.5 billion ($7.7 billion) more than Year.

The central government collected £51.7bn ($61.3bn) in taxes in October, up from £2.5bn ($2.96bn) a year ago.

The government has also felt the effects of continued increases in interest payments it pays on government bonds after a series of interest rate hikes by the Bank of England and rising inflation.

Interest payments on central government debt reached £6.1 billion ($7.2 billion) in October. This includes his £3.3 billion ($3.9 billion) from interest payments on debt.

energy support

Average annual home energy has been frozen at £2,500 ($2,960) from 1 October under an energy price guarantee introduced by former Prime Minister Liz Truss.

The cap, which limits the price companies can charge customers for each unit of energy they use, was to last for two years from Oct. 1.

But after Jeremy Hunt replaced Treasury Secretary Kwasi Kwartengu, the Treasury Department announced it would end six months later at its current level, after which more targeted assistance would be provided to the most vulnerable. did.

In his fall budget, released on 17 November, he announced that the energy price guarantee would continue for a further 12 months from April, although the average household would now be able to cut prices from £2,500 a year. Increased to £3,000 ($3,500).

This equates to a monthly payment of £67 ($80), which the government constitutes a rebate of £400 ($474) to all households to offset the rise in energy prices ending March onwards.

Hunt said this still means an average of £500 ($592) of support for each household as prices are projected to continue to “rise” into next year.

Tightrope walking

Commenting on the amount borrowed in October, Hunt said the government needs to balance the need to help households and businesses with the need to manage public sector debt.

he said: [Russian President Vladimir] Putin’s illegal invasion of Ukraine.

“However, returning public finances to a more sustainable path is essential to combat inflation and ensure the economic stability needed for long-term growth.

“There is no easy path to balancing the country’s books, but we will take the decisions necessary to reduce our debt while proactively taking steps to protect jobs, public services, and the most vulnerable. I got down.”

Hunt’s fall budget marked a major shift from the Truss administration, which had promised massive tax cuts in mini-budgets.

Hunt announced £55bn ($65bn) of funding cuts and “significant tax increases”, saying the tax as a percentage of GDP would increase by 1% over the next five years.

He said it was meant to protect the most vulnerable people in society and put more of the tax burden on the wealthy.

Mr Hunt has lowered the threshold (45%) for the top income tax rate from £150,000 ($178,000) to £125,140 ($148,370).

He also extended the freeze on income tax personal allowances, higher rate thresholds, major national insurance thresholds, and inheritance tax thresholds by two years until 2028.

Debt interest payment

The Office of Budget Responsibility (OBR) said on 17 November that rising interest rates would double the cost of servicing government debt to more than £120 million ($142 million), leaving the public finances “sustainable to future shocks.” It means that it will become more vulnerable.”

It has been confirmed that the UK is officially in recession, wiping out the last eight years of growth.

OBR said in its assessment of the UK economy: Additional government support of £100bn. ”

He added, “The squeeze on real incomes, rising interest rates and falling house prices will all weigh on consumption and investment, pushing the economy into a year-plus recession starting in the third quarter of 2022, pushing the economy down from a peak of -2% of GDP. % trough dip.”

The OBR also forecast that the unemployment rate will increase by 505,000 to 4.9% in the third quarter of 2024.

But Martin Beck, chief economic adviser at EY Items Club, said the OBR forecast was “based on relatively high assumptions about interest rates and gold coin yields.”

“It is quite possible that public finances will perform better than OBR expects,” he said.

“This could mean that the government could roll back some of the currently planned fiscal tightening beyond 2025-2026.”

Chris Summers, Lily Zhou, and PA Media contributed to this report.

Alexander Chan