"The latest bad news on the public finances will increase the pressure on the Chancellor to raise the 'fiscal headroom' in next week's Budget. This should provide a bigger buffer against future shocks. Unfortunately, it is likely to mean that the tax increases are bigger too. The public sector borrowed £116.8 billion in the seven months to October, £9.9 billion more than the OBR's March forecast. Even more worryingly, the overshoot on the current budget deficit (borrowing to cover day-to-day spending) was £15.1 billion."
"There are lots of moving parts, but the story all year has been higher-than-expected spending (including on public sector pay, welfare benefits, and debt interest), and lower-than-expected tax receipts (despite the apparently strong economic growth in the first half of the year). Every Chancellor has aimed to hit their deficit targets with something to spare - known as the 'fiscal headroom'."
Public sector borrowing reached £116.8 billion in the seven months to October, £9.9 billion above the OBR's March forecast, while the current budget deficit overshot by £15.1 billion. Higher-than-expected spending on public sector pay, welfare benefits and debt interest, combined with weaker-than-expected tax receipts despite strong early-year growth, drove the deterioration. The government's deficit rule requires a current budget surplus by 2029-30, but the current budget is now forecast to be only £9.9 billion in surplus that year, leaving minimal margin for error. Doubling fiscal headroom to £20 billion would reduce the risk of further tax rises, although larger immediate tax increases could harm the economy. A compromise increase to about £15 billion would improve resilience only modestly.
Read at London Business News | Londonlovesbusiness.com
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