The UK’s public sector debt has hit 100% of the value of the country’s annual economic output for the first time since the 1960s, according to official figures released ahead of the chancellor’s maiden budget.
The Office for National Statistics (ONS) said, in a preliminary estimate, that the figure had risen from the 99.3% figure recorded the previous month.
Wider data revealed by the number crunchers showed that the government borrowed £13.7bn in August, up by £2bn on the figure expected by the Office for Budget Responsibility (OBR).
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It meant that borrowing for the current financial year, at £64.1bn, was £6bn higher than the OBR had forecast.
ONS chief economist Grant Fitzner said: “Borrowing was up by over £3bn last month on 2023’s figure, and was the third highest August borrowing on record.
“Central government tax receipts grew strongly, but this was outweighed by higher expenditure, largely driven by benefits uprating and higher spending on public services due to increased running costs and pay.”
The official figures were released against a backdrop of spending cuts, including the removal of universal winter fuel payments to pensioners, and public sector pay settlements to end strike action ahead of Chancellor Rachel Reeves’ first budget on 30 October.
Along with the prime minister, she has warned of tough choices ahead to fill what they call a £22bn black hole in the public finances left behind by the Conservatives.
News that government debt hit 100% of economic output for the first time in decades only intensifies the challenge facing Ms Reeves and her Treasury team at a time when economic growth has slowed, with consumer confidence said to be suffering due to warnings of tough budget choices ahead.
The Times reported that a decision by the Bank of England to slow its sale of financial crisis-era bonds would provide a £10bn boost to her coffers through lower losses, but added that she was determined to double down on a course of fiscal discipline despite intense pressure to overturn the winter fuel payment decision.
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Chief Secretary to the Treasury Darren Jones said: “When we came into office, we inherited an economy that wasn’t working for working people.
“Today’s data shows the highest August borrowing on record outside the pandemic. Debt is 100% of GDP, the highest level since the 1960s.
“Because of the £22bn black hole in our public finances we have inherited this year alone, we are taking the tough decisions now to fix the foundations of our economy, so we can rebuild Britain and make every part of the country better off.”
Ms Reeves has warned taxes will go up in the budget, though she has ruled out increases in rates of income, corporation and value-added taxes due to the party’s election promises not to tax “working people”.
Inheritance and capital gains taxes could be in the firing line and there is also speculation that falling fuel costs will allow her to overturn the 5p-per-litre fuel duty cut introduced by Rishi Sunak at the height of the cost of living crisis.
John O’Connell, chief executive of the TaxPayers’ Alliance, said of the milestone: “Taxpayers will be hoping that this will be a wake up call for Rachel Reeves ahead of the budget.
“With the debt now matching the size of the economy, this needs to be a watershed moment for all politicians, but particularly the chancellor, to recognise that the situation is unsustainable.
“Getting a grip of the national debt should now be a top priority for the government, with future generations set to be hit hard if it follows the big spending philosophy of its predecessors.”