Public sector pay rises help drive up government borrowing

Government borrowing rose to £17.4bn last month – the second highest October figure since monthly records began, official figures show.

Economists had predicted £13.3bn of borrowing.

The Office for National Statistics (ONS) said public sector net borrowing was £1.6bn higher than the same month last year.

Figures also showed that central government debt interest rose to £9.1bn for the month – the highest October figure on record.

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Jessica Barnaby, ONS deputy director for public sector finances, said: “This month’s borrowing was the second highest October figure since monthly records began in January 1993.

“Despite the cut in the main rates of national insurance earlier in 2024, total receipts rose on last year.

“However, with spending on public services, benefits and debt interest costs all up on last year, expenditure rose faster than revenue overall.”

Not since the pandemic year of 2020 when the furlough scheme was in operation was there a gap as big between state income and spending.

It’s down to hiked interest rates. Government borrowing also grew more expensive in the weeks running up to the US election.

Uncertainty over who would become the next US president and what would be announced in the budget brought up the rate the UK had to pay on its bonds – a form of debt states issue to raise funds.

Many of the public sector pay rises announced by the new Labour government also took effect last month.

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Another contributing factor was spending on public services and benefits, the ONS said, which increased faster than increased tax takes.

Tax revenues also rose, despite national insurance cuts – just not as fast as spending.

It will be unwelcome news for Chancellor Rachel Reeves who has committed to reduce debt, “fix” the foundations of the economy and increase spending.

The public sector finance announcement is the first since her October budget.

Government outflows are unlikely to fall anytime soon with the budget anticipated to up spending by about £70bn over the next five years, according to analysis by independent forecasters the Office for Budget Responsibility (OBR).

When measured as a percentage of GDP, which tracks everything produced in the economy, debt was at 1960s levels.