Government borrowing was higher than expected and consumers tightened their belts, spending less than anticipated, official figures show.

Government borrowing rose to the third-highest October level since records began in 1993, though less than a year ago, according to the Office for National Statistics (ONS).

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It’s the last assessment of public finances we’ll get before Chancellor Rachel Reeves makes her budget announcement next week. It showed spending on benefits and public services was up, which was offset by higher tax takes.

Expensive borrowing

Billions were spent on borrowing money last month, with interest payments costing central government £8.4bn.

Reacting to the figures, the chancellor’s deputy, James Murray, said, “Currently we spend £1 in every £10 of taxpayer money on the interest of our national debt.

“That money should be going to our schools, hospitals, police and armed forces. That is why we are set to deliver the largest primary deficit reduction in both the G7 and G20 over the next five years – to get borrowing costs down.”

While the numbers won’t have a direct effect on the budget, with figures already submitted, it illustrates the difficult backdrop facing the chancellor, who’s committed to maintaining her self-imposed fiscal rules to bring down government debt and balance the budget by 2030.

It’s unwelcome news for Ms Reeves.

“There was little good news for the chancellor in this morning’s public finances release, with October borrowing in isolation running ahead of the [Office of Budget Responsibility] OBR’s projections by £3.1bn, the second-highest overshoot so far in this fiscal year,” said Pantheon Macroeconomics’ senior UK economist Elliott Jordan-Doak.

“Borrowing has now overshot the fiscal watchdog’s projections in four of the seven months so far this fiscal year”.

As a result of the fiscal bind, tax rises are widely expected to be announced next week.

Public sector net borrowing reached £17.43bn, above the £15bn forecast by economists polled by Reuters.

A slowdown in sales

Retail sales – how much people are spending – shrank 1.1% in the half-term month too. No growth had been expected, rather than a contraction.

This matters as retail sales figures measure household consumption, the largest expenditure in the UK economy.

Consumers were holding back for Black Friday deals, retailers told the ONS.

Along with weakened levels of consumer sentiment, the data paints a picture of worry about the impact of the budget.

The long-running GfK consumer confidence index dropped this month, suggesting the public is waiting for difficult news.

Sir Keir Starmer has insisted the G20 still matters and is a “really important” forum to bang the drum for British business, despite the decision of Donald Trump to boycott the international summit in South Africa.

Asked what he thought of the US president’s decision, the prime minister simply said Mr Trump had “set out his position”.

The PM added he thought it was “really important to be [at the G20] to talk to other partners and allies so we can get on with the discussions around global issues that have to be addressed, and do have an impact back at home, but also to take the opportunity face to face to further the deals that I want to do for our country”.

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Sir Keir has faced heavy criticism at home for the amount of time he has spent overseas and focusing on international affairs. His trip to South Africa to attend the G20 summit is the 45th country the prime minister has visited since taking office.

Speaking to journalists on the flight over to Johannesburg, Sir Keir defended his decision to fly out days before a difficult budget, saying that the international issues being discussed in South Africa have an impact at home, while the G20 nations are important to Britain’s economy.

“The G20 are the 20 strongest economies in the world, they are very important to the UK,” he said.

“In the last three years, the jobs that have been generated in the UK from countries in the G20 is 200,000 and that focus in the budget will be very much the economy and the cost of living. I will focus on the deals we can do, the business we can do with our partner countries and make sure that the work we do internationally is impacting directly at home in the positive sense, that if you want to deal with the cost of living and make people better off, good, secure jobs with investment from G20 partners and allies is really important.”

As part of these efforts, the government will announce £400m worth of export deals with South Africa during the summit.

This summit is the first one in the G20’s 26-year history that a US president has not attended, with one diplomatic source acknowledging this was raising serious concerns. They said: “Trump also made the argument that the G7 should be the G8 [at the last meeting in Canada in June] and now he’s not even going to the G20, so his lack of attendance is, of course an issue.”

Mr Trump has also ordered US officials not to travel to South Africa for the annual meeting, although the country’s president, Cyril Ramaphosa, said on Thursday evening that this might change, with discussions now under way with the US.

While Mr Trump is not attending, Sir Keir will leave the G20 summit early, coming back to the UK on Sunday to prepare for a tax-raising, and possibly manifesto-breaking budget on Wednesday.

The chancellor raised £40bn in taxes in the last budget, insisting that this was a “once in a parliament” tax raid. A year on, Rachel Reeves now has to raise billions more as she looks to fill a black hole as much as £30bn in the public finances, driven in part by a downgrade in productivity, which has lowered growth forecasts, and also her reversal on spending cuts – the winter fuel allowance and disability benefits – that has left her with around £7bn to find.

The government has U-turned on its plan to raise income tax but is expected to extend a freeze on tax thresholds by two years from 2028. The measure will raise about £10bn in additional tax as workers find themselves dragged into higher tax bands and has led to accusations that Labour has broken its manifesto pledge not to raise taxes on working people.

The prime minister, asked whether everyone should expect tax rises in the budget on Wednesday, refused to answer directly. Instead, he said it would be “a Labour budget with Labour values” and based on “fairness”.

He added: “It will have absolutely in mind protecting our public services, particularly the NHS, cutting our debt, and dealing with the cost of living, bearing down on the cost of living. So, they’ll be the principles that will run through the budget.

“Now, of course, the right decisions have to be taken. And we have to see this in the context of 16, 17 years now where we’ve had the crash in ’08, followed by austerity, followed by a not very good Brexit deal, followed by Covid, followed by Ukraine, and that’s why we have to take the decision to get this back on track.

“I’m optimistic about the future, I do think if we get this right, our country has a great future. They’ll be the principles behind the budget.”

While the prime minister is focusing on trade at the G20 summit, Ukraine will also be on the agenda amid reports the Trump administration and Russian officials have drawn up a new peace plan to end the war there.

It would require major concessions from Kyiv, including giving up territory not currently occupied by Russia to Moscow and halving the size of the Ukrainian army. The deal has reportedly been drawn up by Mr Trump’s special envoy Steve Witkoff, who met the current secretary of the national security and defence council of Ukraine and former defence minister, Rustem Umerov, in Miami.

Asked about the plan, Sir Keir said he wanted a “just and lasting peace”, adding: “The future of Ukraine must be determined by Ukraine, and we must never lose sight of that”.

I’m told by one diplomatic source that the Europeans have yet to see this plan, while there are questions as to how advanced in the US administration these proposals are and whether they have the support of Secretary of State Marco Rubio.

European diplomats are stressing that any peace talks have to involve both Ukraine and European input if it is to have any hope of working. Kaja Kallas, the EU’s foreign policy chief, said on the eve of the G20 summit they are yet to see any concessions on the Russian side.

“We welcome all meaningful efforts to end this war, but like we have said before, it has to be just and lasting,” she said. “That also means that the Ukrainians, but also the Europeans, agree to this.”

European leaders are discussing how to best equip Kyiv for another winter of war. Talks are expected to continue this weekend over the plan to use Russia’s frozen assets to generate a €140bn loan for Ukraine.

The plan is currently stalled over Belgium’s concerns of legal risk in releasing funds from the Brussels-based depository Euroclear, where most of the Russian assets are held.

Earlier on Thursday, Sky News revealed Sir Keir is preparing for a likely visit to China in the new year. The trip is likely to be controversial given the UK’s fractious relationship with China, made worse by recent allegations of spying in parliament.

Sir Keir said any visit was not confirmed “yet” and insisted the government would “always robustly protect our interests”.

They’ve been billed as the “most sweeping asylum reforms in modern times” and the “biggest shake-up of the legal migration system” in nearly 50 years, but how are the UK’s rules actually changing?

One of the biggest changes will impact almost two million migrants already living in the UK while other proposals will affect people who come here in the future.

Here’s how…

How is ‘settled status’ changing?

Until now, migrants who live in the UK have needed to wait five years before they can apply to settle permanently but this qualifying period will double to 10 years – and some people could have to wait even longer.

Almost two million migrants will be affected by the changes.

Those “making a strong contribution to British life” will benefit from a reduced timeframe.

That means doctors and nurses working in the NHS will be able to settle after five years, while high earners and entrepreneurs may able to stay after just three years.

Migrants who speak English to a high standard and volunteer could also have a faster route to settlement.

At the other end of the scale, low-paid workers will be subject to a 15-year wait.

With this, the government is explicitly targeting the 616,000 people and their dependents who came to the UK on health and social care visas between 2022 and 2024 – the so-called “Boriswave”.

The government is going further still in targeting migrants who rely on benefits, quadrupling the current wait to 20 years.

There are also plans to limit benefits and social housing to British citizens only.

And though recognised refugees who came to the UK legally will still be eligible for public funding, they too will be subject to the 20-year timeframe.

How will asylum rules change?

Inspired by immigration policy in Denmark, refugee status will become temporary, lasting only until it’s safe for the person in question to return home.

This means that asylum seekers will be granted leave to remain for 30 months, instead of the current five years, with the period only extendable if they still face danger in their homeland.

However, refugees will be eligible to settle sooner if they get a job or enter education “at an appropriate level” under a new “work and study” visa route, and pay a fee.

The government also plans to revoke its legal duty to support asylum seekers who would otherwise be destitute, a measure it says was introduced to comply with EU laws which Britain is no longer bound by.

Instead, support will be discretionary, and some people will be excluded – such as criminals, those who refuse to relocate, those who can work but won’t, those who are disruptive in their accommodation, and those who deliberately make themselves destitute.

Additionally, asylum seekers who have assets or income will be required to contribute to the cost of supporting themselves.

What about illegal migrants?

Meanwhile, illegal migrants and those who overstay their visas face a wait of up to 30 years before qualifying for permanent settlement.

But plans to bar criminals from settlement are still being figured out, with the government saying “work will take place to consider the precise threshold” at which someone is ineligible.

“The reforms will make Britain’s settlement system by far the most controlled and selective in Europe,” according to the government.

Alongside the new measures, plans are afoot to boost the number of migrants being removed from the UK.

What about illegal migrants who are already here?

A “one in, one out” agreement is already in place with France, under which those who cross the channel illegally are to be sent back, with Britain accepting instead a “security-checked migrant… via a safe and legal route”.

“This pilot is under way, and the government is working in partnership with French on expansion,” according to the government.

Furthermore, refugees will not have automatic family reunion rights, and the removal of families of failed asylum seekers is to be stepped up.

Read more:
Countries facing Trump-style visa ban under asylum reforms
Why Labour MPs are uncomfortable with the new asylum approach

Perhaps controversial are plans to offer financial support to those who agree to go voluntary.

The government argues this is “the most cost-effective approach for UK taxpayers and we will encourage people to take up these opportunities”.

Sanctions will also be imposed on nations that fail to cooperate on the return of their citizens, including suspending visas for that country.

And for those who are refused refugee status, the appeals process is to be streamlined, with one route of appeal, judged by one body, requiring applicants to make all their arguments in one go, instead of making multiple claims.

Human rights legislation will be reformed too, in a bid to reduce legal challenges to deportations.

Finally, the number of arrivals accepted through “safe and legal routes” will be capped, “based on local capacity to support refugees”.

The reforms will not apply to people with settled status, and there will be a consultation on “transitional arrangements” in some cases.

The five-year wait for immediate family members of UK citizens remains unchanged, as it does for Hong Kongers with British national (overseas) visas.