Tax receipts were a little above the OBR's forecast in September, but the effect of higher debt servicing costs in pushing up public spending meant the fiscal deficit exceeded the official forecaster's prediction for the third successive month. With the Energy Price Guarantee (EPG) now in effect, borrowing is likely to increase over the winter.
- The decision to cut short the life of the EPG, falls in gas prices and U-turns on tax cuts will lower borrowing in 2023-24 relative to expectations only a week or so ago.
Martin Beck, chief economic advisor to the EY ITEM Club, says: “The Government borrowed £20bn in September. This was £2.2bn higher than in September 2021 and the first month since March 2021 to see a year-on-year rise in borrowing. It was also £5.2bn above the OBR's March forecast of £14.8bn and was the second successive month to exceed expectations. Revenues were a little above what the OBR had anticipated, but this was offset by higher-than-expected spending, with government outlays driven up by a rise in the cost of servicing inflation-linked gilts.
“The outturn in September left the deficit in the fiscal year-to-date at £133.3bn compared with an OBR forecast of £127.8bn. But only a small part of the fiscal policy support announced for 2022-23 has so far fed into borrowing. Notably, the cost of the Energy Price Guarantee (EPG) and the cap on businesses’ energy bills will not affect spending until this month. November will then see revenues reduced by the cut in national insurance contributions.
“However, the decision to reverse almost all the other tax cuts of September's mini-Budget and limit the EPG to six months means borrowing will come in significantly less in 2023-24 than was being predicted only a week or so ago. The prospect of tax rises and spending cuts in the forthcoming fiscal statement point in the same direction.
“If energy prices are elevated next spring, there's a chance the EPG will be extended. But a fall in future gas prices offers hope that an extension won't be necessary. However, the effects of a likely recession on the public finances and the risk that energy prices could increase means that the fiscal deficit this year and next will probably come in tens of billions of pounds above the OBR's March forecast of £99.1bn and £50.2bn respectively.”