The UK government’s borrowing surged from £16.6bn to £16.6bn during September

The government has borrowed more than official estimates by £6.6 billion this year. This shows the fiscal squeeze facing Rachel Reeves ahead of the next budget.

The Office for National Statistics has published figures showing that the government borrowed £16,6 billion in September. This is an increase of £2,1 billion compared to the same month in the previous year, and the third highest amount ever recorded for a month. Analysts had predicted that the deficit would total £17.5 billion in September.

The September deficit puts the government’s borrowings in excess by £6.6 billion of the Office for Budget Responsibility forecast of £73 billion for the entire year.

The budget for October is the first delivered by a woman chancellor. It comes after an unimpressive first 100 days of government. This was overshadowed with party fights over the retention the cap on the number of children that can receive benefits, public outrage over the reduction of winter allowance for pensioners, and a scandal involving freebies.

The announcement will be the beginning of the government’s economic strategy, which will guide tax and spending policies over the next five-year period. Reeves, and Sir Keir, the Prime Minister, insist that Labour requires two parliamentary sessions to repair Britain’s failing public services and revive economic growth .

Darren Jones said, “We inherited a £22billion black hole in the public finances of the country, and no plan for funding pay deals for millions public sector workers.” To close this black hole in the budget next Monday, we will need to make difficult decisions that will fix our economy’s foundations and start delivering on change.

Cara Pacitti is a senior economist with the Resolution Foundation. She said that borrowings have exceeded expectations this year by £11,5 billion, due largely to higher public sector salaries and running costs.

Reeves announced in July a £9-billion pay deal above inflation with workers of the public sector. This, along with higher spending for the asylum system left by the Conservatives contributed to the majority of the £22-billion “fiscal hole”.

Pacitti said that the ONS data highlighted the “scale of the challenges the chancellor faces as she deals with overspending in the present, the need to avoid future austerity and the necessity to fund additional public service expenditure through tax increases”.

The ONS reported that the increase in welfare payments linked to inflation accounted for a £7.7-billion jump in benefit spending over the last year, to £154.2-billion. It also noted an increase of £10.6-billion to £209.6-billion by central government departments’ spending on goods, services, and running costs, due to pay increases and inflation.

Tax receipts increased by £16.4 billion over the last year, to £490.6billion, driven largely by an increase of £9.7billion in income tax receipts.

The chancellor will launch £40 billion in fiscal tightening next week to reduce the government’s deficit. Most of this money will be raised through tax increases. This could include capital gains tax and employers’ pension contributions being subjected to national insurance.

The ONS reports that the debt-to GDP ratio reached 98.5% in September. This is the highest since the 1960s. The debt interest expenditure, which is a major constraint to the public finances due to rising interest rates has totaled £5.6 billion, up from £1 million in September last year.

Jessica Barnaby said that borrowing this month was approximately £2 billion higher than last year. This is the third highest figure for September in the ONS’s records. Tax revenue was up, but spending increased. This is partly because of higher debt interest rates and pay increases in the public sector.

The chancellor may offset tax increases with an increase in public investment, which economists say is needed to boost the UK’s stagnant growth rate. She could change the definition of public debt to include government assets and liabilities, which would increase the headroom for fiscal targets by £50billion. A tweak to fiscal rules could lead to the so-called “golden rule” whereby tax revenues are used to finance the day-today spending of the government.

Alex Kerr, UK-based economist at Capital Economics (a consultancy), said: “If the UK government tweaks its fiscal rules, it will still be able to increase public investment.”

The OBR will not be influenced by the September public finance figures when judging how much cash Reeves will have against her fiscal rules, as the OBR has already completed its economic forecast which will be released next Wednesday.

Reeves’s budget reductions are likely to increase in real terms, but unprotected government departments like local councils could see their spending allocations cut. NHS funding will likely rise in real terms. However, unprotected departments like local councils could have their budgets cut.

The Office for Budget Responsibility, which is the government’s fiscal watchdog, has determined that Jeremy Hunt, former Conservative chancellor and previous Conservative minister, had £8.9 Billion of headroom in relation to his fiscal targets following the last budget, March this year.