Government borrowing was higher than expected last month despite an increase in tax revenues and a reduction in the level of energy support for millions of households.
Analysts blamed increases in the cost of welfare benefits and the debt interest bill for a monthly deficit of £14.3bn in November. That was lower than the £15.2bn in the same month last year, but higher than City economists expected.
The figure was also well above the £12.5bn predicted by the Treasury’s independent forecaster, the Office for Budget Responsibility (OBR).
Since the beginning of the financial year in April, data from the Office for National Statistics showed total public sector net borrowing was more than 25% higher than over the same eight month period last year at £116.4bn.
Analysts said there would be better news for the government on the public finances heading into 2024 after a sharp fall in annual inflation in November. The consumer prices index fell to 3.9% while the retail prices index (RPI) dropped to 5.3%. A significant amount of government borrowing is tied to the RPI and recent falls should lower interest payment bills.
The chancellor, Jeremy Hunt, is under pressure to announce tax cuts in a pre-election budget next March, and a reduction in the amount he needs to spend on debt payments will fuel further calls from Tory backbench MPs.
However, the fall in inflation is also likely to reduce pay claims, limiting further increases in tax revenues.
A freeze on income tax thresholds has pushed millions of people into higher tax bands over the last two years, but this trend may slow if employers restrict pay rises in line with falling inflation.
Samuel Tombs, the chief UK economist at the consultancy Pantheon Macroeconomics, said the ebbs and flows in the public finances would leave the chancellor financially better off next year, but financial markets would react adversely to any moves that sparked memories of the Liz Truss mini-budget debacle in 2022.
“We think that he will decide that it is best to promise tax cuts in the next parliament and to give the [Bank of England] scope to reduce interest rates now by largely sticking to his plans for a large fiscal consolidation in 2024/25,” said Tombs.
The chief secretary to the Treasury, Laura Trott, said spending on higher welfare payments and energy subsidies over the last year was justified, but added: “We cannot leave our children and grandchildren to pick up the tab. That’s why the prime minister has made reducing debt a top priority.
“We are taking difficult decisions in the national interest to control our borrowing needs and improve productivity, so that we deliver the public services people need while keeping inflation down.”
The OBR expects government borrowing this tax year to be nearly £124bn, which would be £6.6bn lower than last year.
The decrease in RPI meant government’s interest rate bill fell by 15% to £61bn in the April-November period, compared with a year earlier, while receipts from income tax, corporation tax and VAT increased by 8% to 10%.
Adding to government costs, there was a 12% increase to £195bn in spending on items such as benefits and pensions in the financial year to date, reflecting a big inflation-adjusted increase in welfare.
The government’s total debt pile, excluding state-owned banks, stood at £2.67tn, equivalent to 97.5% of gross domestic product.