UK national debt has hit 100% of the country’s annual economic output, the highest level since the 1960s, underscoring the challenge facing the chancellor, Rachel Reeves, as she prepares for next month’s budget.
Figures from the Office for National Statistics (ONS) show the government’s debt pile as a share of gross domestic product increased by 4.3 percentage points over the year to August to reach a size equal to the annual value of everything produced in the economy.
Government borrowing – the difference between public sector spending and income – was £13.7bn, an increase of £3.3bn on the same month a year earlier, and the third highest August deficit since monthly records began in January 1993.
Darren Jones, the chief secretary to the Treasury, said the figures demonstrated the challenging state of the public finances left by the Conservatives, which would force Labour to take “tough decisions” to rebuild the economy.
“When we came into office, we inherited an economy that wasn’t working for working people. Today’s data shows the highest August borrowing on record, outside the pandemic. Debt is 100% of GDP, the highest level since the 1960s,” he said.
The figures came amid growing pressure on the government to ease tax increases and spending cuts pencilled in for the 30 October budget, after Keir Starmer told the public to expect “painful” decisions after finding what Labour called a £22bn hole in the public finances.
Reeves announced in August she would scrap winter fuel payments for most pensioners, shelve plans for social care reform and axe road, rail and hospital investment as the first stage of a plan to reduce borrowing.
However, concerns are growing within Labour ranks that the downbeat tone is damaging the government, while economists have warned that measures hitting consumer confidence could hurt growth and jobs.
Figures from the data company GfK published on Friday showed consumer confidence fell to the lowest level since March, which it blamed on Reeves’s plans to scrap winter fuel payments for all but the poorest households, and on warnings of further difficult decisions to come.
The latest snapshot of the public finances from the ONS showed that while tax receipts grew strongly in August, this was outweighed by higher expenditure – largely caused by benefits rises and higher spending on public services owing to increased running costs and pay.
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While official figures had put the debt ratio above 100% last year, the ONS said revisions meant this was the first time since 1961 the reading had equalled the size of the economy.
Matt Swannell, the chief economic adviser to the EY Item Club, said: “At what is almost the halfway point of the fiscal year, the UK’s fiscal position remains challenging, and Treasury analysis suggests that the situation may deteriorate further over the remainder of the year.
“The government will likely have to increase spending over the next few months, due to a combination of accepting the recommendations for higher pay increases from public sector pay boards and non-labour cost overruns across a range of government departments.”