Recent data from the Office for National Statistics reveals that government borrowing surpassed expectations for the last financial year.
According to the official figures, borrowing, defined as the variance between spending and tax income, reached £120.7 billion in the twelve months leading up to March. While this figure is lower compared to the previous year, it exceeds forecasts by £6.6 billion.
Analysts suggest that this higher-than-anticipated borrowing may constrain the possibility of a pre-election tax reduction. Ruth Gregory, Deputy Chief UK Economist at Capital Economics, commented, "If the chancellor had hoped for more leeway for tax cuts based on March's figures, he will likely be disappointed."
Cara Pacitti, Senior Economist at the Resolution Foundation, echoed this sentiment, stating that there is no indication of additional fiscal room for a pre-election Budget targeting lower-income households.
The Office for Budget Responsibility (OBR), the government's autonomous forecasting body, had projected borrowing for the year to be £114.1 billion.
With a general election due by January 2025, speculation has arisen regarding potential tax cuts before voters head to the polls. Chancellor Jeremy Hunt previously reduced National Insurance by 2p in the pound during the spring Budget, following a similar cut announced in the previous Autumn Statement. Each cut is estimated to cost the government nearly £10 billion, as per OBR's assessment.
Despite the unexpected rise in borrowing, Rob Wood, Chief UK Economist at Pantheon Macroeconomics, anticipates further tax cuts before the election. However, he acknowledged the impending dilemma for the next government, which will have to balance between bolstering public services through tax increases or maintaining the recent tax cuts.
Jessica Barnaby, Deputy Director for Public Sector Finances at the ONS, highlighted increased government spending on public services and benefits, which outpaced reductions in interest payments and energy support scheme costs.
However, borrowing in March alone amounted to £11.9 billion, £4.7 billion lower than the previous year but still surpassing analysts' expectations.
Total government debt stood at £2.7 trillion by the end of March, equivalent to 98.3% of the UK's GDP, a level last observed in the early 1960s, according to the ONS.
A Treasury spokesperson attributed the recent debt increase to necessary measures taken during the COVID-19 pandemic and to alleviate the impact of surging energy costs following the Ukraine crisis.
Liberal Democrat Treasury spokesperson Sarah Olney MP criticized the Conservative government, attributing Britain's economic challenges to their mismanagement.