UK public borrowing ends fiscal year higher than forecast

Today’s borrowing figures for the UK have reinforced once again the precarious position of the UK’s public finances, firing a warning shot across the bows of both the government and the opposition party that, whichever one wins the forthcoming general election, the headroom to materially cut taxes or boost spending is minimal.

Overall public sector net borrowing for the 2023/24 fiscal year overshot the official forecast provided by the Office for Budget Responsibility by £6.6bn. Borrowing in March (excluding public sector banks) came in at £11.9bn, significantly below the £16.6bn figure seen in March last year but still above the £10.0bn figure that had been expected. This reduction in year-on-year borrowing was largely down to the absence of the energy support packages the government was providing last year, but overshot expectations on the back of weaker-than-expected tax receipts. Of course, revisions could easily change this picture going forward, for better or worse, although the Chancellor will not be unduly concerned about the overshoot today given that his self-imposed fiscal rule is based on the level of borrowing in five years’ time. However, today’s report does show that the fiscal cushion he has engineered for himself of approximately £9bn – to fund expected tax cuts ahead of the forthcoming general election - could easily be 'revised' away.

The overshoot in borrowing has led the UK Debt Office to say that it will boost the government’s borrowing plans this year to cover the budget shortfall, a move that will further raise questions regarding the prudence of cutting the level of taxation further. But it will also be disappointing news for the opposition Labour Party who, widely expected to from the next government, have pledged themselves to reducing debt as a share of the economy within the lifetime of one Parliament.

On balance, the Chancellor will probably still choose to cut tax rates this Autumn in a final roll of the dice to try and improve the government’s chances of retaining power. Working in his favour will be the fact that his five-year fiscal plan will be extended by a further year to 2029/30, providing him with the opportunity to pencil in another year of unrealistically low public spending figures in order to generate additional headroom against his fiscal rules to cut taxes now. The downside of this strategy, however, is that whichever party forms the next government, will be required to either preside over unrealistically large cuts to public services or else reverse much of the tax cuts implemented to date to boost revenues, neither of which will be popular with the electorate.