Chancellor hit by spending squeeze as borrowing climbs by a fifth in run-up to Brexit

This article is more than 10 months old

This article is more than 10 months old

The chancellor has suffered a squeeze on public spending in the run-up to next month’s budget after an increase in borrowing to £9.4bn in September.

A spending upturn across Whitehall departments and the rising costs of the winter fuel allowance for pensioners pushed borrowing beyond last September’s £8.8bn, knocking Sajid Javid’s plans to inject billions of pounds into public services and infrastructure projects in his first budget on 6 November.

Figures from the Office for National Statistics showed borrowing for the first half of the financial year was up by more than a fifth, confirming that a decade-long trend of deficit reduction has come to an end even before the costs of Brexit have taken their toll.

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Alongside a 5.4% rise in day-to-day government spending on public services for the year to date, the ONS said tax revenues rose by only 2.8%, pulled back by the biggest six-month fall in corporation tax since 2013 and a dip in fuel duty payments.

In the first six months since the start of the current tax year in April, borrowing has hit £40.3bn, 21.6% higher than the same period in 2018, when it was just £33.2bn, the ONS said.

Javid has said he will increase borrowing further to fund extra spending on hospitals, schools, transport and infrastructure projects. However, the Treasury is on course to miss its 2% annual public spending deficit limit, leaving him with less money to spend without further breaching the rule.

Borrowing totalled 1.9% of GDP in 2018-19, the ONS figures show.

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The government also faces extra costs should it succeed in pushing through the Brexit withdrawal agreement bill by the end of the month.

Analysts at the thinktank UK in a Changing Europe estimate weaker trade ties with the EU will damage Britain’s economy and reduce tax revenues by up to £49bn a year compared with staying in the trade bloc.

Total public sector net debt totalled 80.3% of GDP in September, excluding public-sector banks, or £1.79tn.