This morning marks a milestone – but it’s nothing to celebrate. Public sector net debt as a percentage of the economy has exceeded 100 per cent: a level not seen since the early 1960s. And there are no signs of course correction.
The latest update from the Office for National Statistics shows, once again, that the government is spending plenty more than it takes in, with borrowing figures for August coming in at £13.7 billion – £3.3 billion higher than last year and £2.5 billion higher than had been forecast by the Office for Budget Responsibility in March.
Meanwhile debt servicing payments continue to take their toll, coming at £5.9 billion last month. It’s a tiny dip compared to last year – £0.1 billion less – as higher rates continue to demand that more of the public finances be redirected to serving money already spent. Even with the Bank of England starting its slow and steady process of cutting rates, payments are still tens of billions of pounds higher than predicted pre-pandemic. The era of ‘low for long’ rates has come to an abrupt end – and there is no sign of them returning.
This is only the latest tranche of evidence that the government is spending far beyond its means (the ONS chalks up the additional costs as ‘spending on providing public services and on benefits’ which has ‘increased with inflation’). But the news lands just ahead of two party conferences: Reform in Birmingham and Labour in Liverpool. Both have very different messages on the state of the public finances and the economy.
Reform spent the summer election calling for vast spending increases and tax cuts – a spectacular combination that could make Liz Truss blush. The insurgent party proposed roughly £90 billion worth of tax cuts and £50 billion worth of spending increases. These payments were never costed and certainly seem suspect when you look at figures like the ones released this morning.
Meanwhile Labour has chosen to go in the other direction – somewhat radically, and unnecessarily so – by insisting that the economy is on the brink of freefall. They’ve said the public finances are so dire that the £1.5 billion spent on winter fuel allowance could have caused a disaster reminiscent of Truss’s infamous mini-Budget. It’s going to be a remarkable contrast: a party that just won in a landslide bringing such a doom-and-gloom narrative into its first party conference since its election victory.
Of course, there is a purpose to the negativity. It’s a ploy by Rachel Reeves to brace people for what’s to come in her first Budget next month (and for Labour to try its best to pin the blame on the Tory government, rather than their own). But is it doing more political harm to the party than good? Ross Clark argues on Coffee House that the latest set of retail sales figures, out this morning, don’t necessarily show signs of a spooked consumer base. But with changes to the winter fuel allowance as well as looming energy bills this winter, average-salaried workers are aware that the changes might affect them – which means there’s plenty more room for attitudes to turn south after the Budget.