Government borrowing lower than forecast – but next chancellor ‘facing Pandora’s box’

Business

Government borrowing was less than expected in May, new figures have revealed.

Net borrowing – the difference between public sector spending and income – was £15bn, an increase of £0.8bn on the same time last year, the Office for National Statistics (ONS) reported on Friday.

The amount is below the £15.7bn forecast by the Office for Budget Responsibility (OBR).

However, despite the better-than-expected figures, economists said whoever wins the upcoming general election will still face a string of potential financial difficulties.

The amount of net borrowing for the month of May was also the highest since the COVID-19 pandemic, the ONS said.

Alex Kerr, from research firm Capital Economics, said that while the figure would give a little extra wriggle room for the next chancellor, it would do little to reduce the “scale of the fiscal challenge that awaits”.

He said this included upward pressure on the government’s debt interest bill from higher interest rates.

The firm estimates that the next chancellor will have financial “headroom” of around £8.5bn at their first post-election fiscal event, slightly less than the £8.9bn left over from the last budget in March.

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But economist Michal Stelmach, from KPMG UK, said the next chancellor was facing a “fiscal Pandora’s box”.

He added: “The fiscal reality is similar for whichever party wins the general election. Interest rates are set to remain higher, debt more difficult to bring down, and spending pressures continue to mount.

“With only nuanced differences in the stated plans for fiscal rules and taxation, borrowing will likely follow a similar path under either government.

“That said, a clear victory would give the winning party a stronger mandate to implement big reforms or increase public investment.”

The ONS also said that public sector net debt, excluding public sector banks, was provisionally estimated at 99.8% of gross domestic product (GDP) at the end of May.

This is 3.7 percentage points more than during the same period last year, and remains at levels not seen since the early 1960s, it added.

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