Introduction: Borrowing rises, but Hunt gets £17bn boost for tax cuts
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Britain borrowed almost £15bn to balance the public finances last month, more than expected, new figures show.
However, borrowing so far this financial year is nearly £17bn lower than forecast – giving room for some policy changes in tomorrow’s autumn statement.
Public sector net borrowing excluding public sector banks rose to £14.9bn in October, the Office for National Statistics reports. That’s £4.4bn more than in October 2022, and also more than September’s £14.6bn.
Economists had expected a smaller deficit last month, of around £12bn.
It’s the second highest October borrowing since monthly records began in 1993, after October 2020 (when Covid-19 pandemic spending pushed the deficit up to almost £20bn).
Public sector net borrowing, excluding public sector banks, in October 2023 was £14.9 billion.
£4.4 billion more than in October 2022 and the second highest October borrowing since monthly records began in 1993.
➡️ https://t.co/3pz6P3drkT pic.twitter.com/9e5524XQ9g
— Office for National Statistics (ONS) (@ONS) November 21, 2023
This takes borrowing this financial year (since April) up to £98.3bn, which is nearly £22bn more than a year ago.
But, despite some upward revisions to borrowing over recent months, it is still £16.9bn less than the Office for Budget Responsibility (OBR) forecast in March 2023.
That confirms that chancellor Jeremy Hunt does have some more ‘headroom’ to raise spending or cut taxes while sticking to the UK’s fiscal rules, when he delivers the autumn statement at 12.30pm on Wednesday.
Hunt has responded to the news, saying:
“We met our pledge to halve inflation, but we must keep on supporting the Bank of England to drive inflation down to 2%. That means being responsible with the nation’s finances.
“At my Autumn Statement tomorrow, I will focus on how we boost business investment and get people back into work to deliver the growth our country needs.”
Yesterday, prime minister Rishi Sunak hinted that business taxes could be cut to boost economic growth.
Sunak promised to reduce the tax burden “carefully and sustainably” and “over time”, stressing that he is focused on “the supply side” of the economy.
Also coming up today
The Treasury Committee will question the Bank of England governor, Andrew Bailey, and members of the Monetary Policy Committee (MPC) today, about inflation and economic data.
The committee are likely to quiz witnesses about the latest wage growth and unemployment, and if there’s a risk the Bank has overtightened monetary policy….
Last night, Bailey said there was more work to do to bring inflation back to its 2% target – and there remained a risk that borrowing costs might need to increase in the coming months.
The governor declared:
“Let me be very clear: it is far too early to be thinking about rate cuts.”
The agenda
-
7am GMT: UK public finances for October
-
10.15am GMT: Treasury committee to question Bank of England governor Andrew Bailey on inflation and economic data
-
1.30pm GMT: Canadian inflation rate for October
Key events
Worryingly, government borrowing in October alone was higher than the independent Office for Budget Responsibility had expected.
The OBR had inked in borrowing of £13.7bn for last month, below the £14.9bn which the government actually borrowed to balance the gap between tax receipts and spending.
That breaks the recent trend of borrowing coming in below the OBR’s forecast, which has given Hunt £16.9bn of wiggle room.
Martin Beck, chief economic advisor to the EY ITEM Club, says:
“Recent months had seen public sector net borrowing come in consistently below the OBR’s forecast, but October broke that pattern.
A deficit of £14.9bn compared with the £13.7bn deficit predicted by the OBR in March and was £4.4bn higher than the deficit in October 2022. The overshoot was more than accounted for by higher-than-expected public spending, notably on debt interest payments. These were the highest for an October since records began. Monthly tax receipts also exceeded the OBR forecast, but to a lesser extent.
Back in the City, UK meat producer Cranswick has lifted its profit forecast this morning, after passing on higher costs to customers.
Cranswick says it expects to hit the “upper end of current market consensus” for the current financial year, ending on 30 March.
Revenues are up 12.3% this year, due to “effective inflation recovery” – the passing on of higher pig prices – and “resilient volume growth”.
Cranswick, which produces sausages, bacon and chicken products, as well as houmous and pet food, says that the broad-based cost inflation it experienced has now slowed.
IEA: Middle East crisis puts oil market on edge
The oil market is “on edge” over the latest crisis in the Middle East, the head of the International Energy Agency (IEA) has warned.
IEA chief Fatih Birol told an energy conference in Norway today that the Israel-Hamas war has not currently had a significantly effect on market prices.
But he warned that this could change, if the conflict escalated.
Birol said:
If one or more of the oil producing countries in the region is directly involved in the conflict, we may see the implications of that.
Brent crude rose towards $94 per barrel in mid-October, after the Hamas attack of October 7. But it then started to dip, falling to $77/barrel towards the end of last week.
Capita to axe 900 jobs in cost-cutting drive
UK outsourcing firm Capita has announced it will cut around 900 jobs worldwide as part of a “significant cost reduction programme”.
The cuts will mainly fall on indirect support function and overhead roles, as Capita tries to cut costs by £60m per year.
Capita, which runs crucial services for local councils, the military and the NHS, employs 43,000 people, mostly in the UK but also across Europe, India and South Africa.
In the UK, it has offices in London, Manchester, Sheffield, Leeds, Edinburgh and Belfast, while its European operations are based in the Republic of Ireland, Poland, Germany and Switzerland.
Jon Lewis, Capita’s CEO, says:
“We are, today, announcing the accelerated delivery of the efficiency savings announced in our Half Year Results with a £20m increase in overhead cost reduction to £60m on an annualised basis from Q1 2024.
As part of the organisational review which underpins the programme we are announcing today, we continue to identify further areas of cost efficiency and will pursue these during 2024.”
Shares in Capita have rallied 9% in early trading.
October’s public finances are no barrier to (some) tax cuts, writes Investec economist Ellie Henderson.
Henderson also explains how inflation added to government spending, and revenues, last month:
Within the headline number, central government expenditure was £13.7bn higher than in October 2022. £4.5bn of this lift comes from added expenditure on net social benefits, largely reflecting the inflation-linked uprating of benefits. Interest payments were also £1.1bn higher than last year, as the index-linked gilt stock is uprated by RPI inflation.
Slightly offsetting this though was a £2.6bn fall in expenditure on net social benefits where falling wholesale energy prices resulted in reduced spending on energy support schemes this October relative to last year.
On the other side of the balance sheet, central government receipts were £2.5bn higher than a year ago. VAT receipts once again received a boost (+£1.2bn) due to the increase in the price level over the year, while income tax receipts (+£1.1bn) were healthy reflecting the tight labour market.
Today’s public borrowing figures do give Jeremy Hunt some potential ‘wiggle room’ to cut taxes tomorrow, says Victoria Scholar, head of investment at interactive investor, as borrowing this financial year is £16.9bn below forecast.
Although borrowing in October was only £3bn less than in October 2020 at the height of the pandemic when billions were being spent on expensive programmes such as the furlough scheme, the government’s finances are in a much better position than the OBR had predicted earlier this year. This potentially provides some wiggle room for the Chancellor Jeremy Hunt when he makes his announcements tomorrow.
So far, the government has been trying to stick with fiscal prudence, refraining from tax cuts and spending increases in order to provide a fiscal backdrop that supports that Bank of England’s monetary tightening path designed to tame inflation.
But with a General Election looming, better-than-expected government finances, Sunak’s year-end target to halve inflation already met, and the Conservatives struggling in the polls, the Chancellor may resort to some vote winning tax cuts in tomorrow’s Autumn Statement.”
Laura Trott: We can now focus on growth and cutting individual taxes
Laura Trott, chief secretary to the Treasury, has dropped a clear hint that personal tax cuts could be announced – or at least promised – in tomorrow’s autumn statement.
Speaking on Radio 4’s Today Programme, Trott argues that the economic situation has “completely changed” compared with a year ago.
Trott says:
Last week we met the prime minister’s pledge to halve inflation, the economy is in a very different place to where we were a year ago, and we can now focus on going for growth, pushing up the growth rate of the economy, and cutting taxes for individuals.
She adds that the economy has “turned a corner”, because of actions by the government and the Bank of England.
[However, inflation is still twice the BoE target of 2%, after falling to 4.6% in October].
New Chief Secretary to the Treasury Laura Trott tells @MishalHusain pretty clearly that “we can now focus on cutting taxes for individuals” because of “turning corner” on economy…
— Faisal Islam (@faisalislam) November 21, 2023
Trott says:
We are now able to talk about this [focusing on personal tax cuts]. We are moving to a different stage”.
However, she won’t confirm whether or not the chancellor will actually announce a personal tax measure tomorrow.
Trott also won’t say whether benefits will be raised by September’s inflation rate (6.7%) as usual, rather than October’s lower reading – we’ll find out tomorrow.
There are early signs of “fiscal deterioration” in today’s public finances, warns ITV’s Joel Hills, pointing to the rise in borrowing in October to almost £15bn.
As the chancellor limbers-up to deliver tax-cuts which only a few weeks ago he told us were “virtually impossible,” early signs of “fiscal deterioration”.
In the financial year to-date, the government has borrowed £17 billion less than @OBR_UK forecast in March but in October… pic.twitter.com/nFWbidowk3
— Joel Hills (@ITVJoel) November 21, 2023
…borrowing overshot both the OBR forecast and the consensus.
Inflation has swelled tax receipts but they are offset by higher current expenditure + debt interest payements.
What a chancellor gives away before an election, a chancellor may have to take back after an election.
— Joel Hills (@ITVJoel) November 21, 2023
UK productivity dips
UK productivity has fallen, new figures show, highlighting the weakness of the economy.
The Office for National Statistics report that output per UK worker fell by 0.1% in July-September, compared with a year ago.
UK output per hour worked declined by 0.3%, year-on-year.
Bart van Ark, managing director of The Productivity Institute, says the UK needs to urgently make changes to tackle its productivity problems, which are holding back growth.
“Another poor quarterly performance for productivity reinforces our view that Britain is in urgent need of a national agenda to double annual productivity over the next 10 years. We anticipate growth is likely to stall for 2023 on the whole.
“A combination of the pandemic plus already weak productivity in the decade preceding it has seen the UK stuck in a growth rut of around 0.5% a year on average. The recent downward revision by the Office for National Statistics of productivity growth in the public sector from 0.7% to 0.3% per year over the past decade is adding to the problems on our plate.
“If the country’s productivity performance doesn’t improve, we predict UK GDP growth would drop to less than 1% a year on average over the next decade. This would fall far short of what’s required to bolster businesses and the government’s revenues, which will be needed to invest in living standards and accelerating performance in the private and public sectors.”
Tax receipts up almost £24bn this year
Tax receipts so far this financial year have swelled by £23.9bn to £457.3bn, new data from HM Revenue and Customs (HMRC) shows.
HMRC report that since April, cash receipts were higher mainly from Income Tax, Capital Gains Tax and National Insurance contributions (NICs) (£11.2bn), VAT (£8.2bn) and business taxes (£7.1bn).
Receipts from Inheritance Tax have totalled £4.6bn for April-October, a rise of £500m compared with last year. There’s speculation that Jeremy Hunt could make cuts to inheritance tax – which is paid by fewer than 4% of all estates.
Paul Barham, partner at Mazars, says:
“£4.6bn has been collected in IHT payments since April and while on track for a record year, it’s future is firmly in the spotlight. Rumours of changes are rife but exactly what the Chancellor is planning is yet to be revealed.
“There are several options on the table. There could be the raising of the threshold at which estates become liable to an inheritance tax charge, acknowledging the increases in property and asset wealth through recent years, or the standard 40% tax rate could be lowered. Or indeed a combination of these could be announced.
“In many of these scenarios, the age-old advice of planning early is likely to stick. Estate planning needs time and that will always be true.”
However, cash receipts from stamp taxes fell (by £3.3bn) while tobacco taxes dropped (by £1bn).
The drop in stamp duty tax receipts is due to “lower transaction numbers, the lower rate of taxation and a more generous relief for first time buyers introduced in September 2022”, HMRC says.
National debt/GDP still highest since 1963
The broad picture is that Britain’s national debt is still its highest level since the early 1960s.
Public sector net debt was £2,643.7bn at the end of October, which is around 97.8% of the UK’s annual gross domestic product (GDP).
That’s 2.3 percentage points higher than a year ago, and the highest share of the economy since 1963.
However, this isn’t dampening speculation about tax cuts tomorrow.
Lindsay James, investment strategist from Quilter Investors, says:
Historically, managing a debt load of this magnitude has been a delicate balancing act. Yet, in the context of this fiscal tightrope, the government’s newfound slack is something they will want to take advantage of, hence the change of rhetoric from one of absolutely no tax cuts to potential changes to income tax or national insurance contributions. Tomorrow’s Autumn Statement is poised to be a pivotal moment, with the government facing mounting pressure to ease the tax burden.
As we stand on the cusp of a range of significant fiscal announcements, the nation will be hoping for measures that will not unsteady our trajectory out of the cost of living crisis but serve to invigorate our economy too.
Capital Economics: Hunt won’t resist pre-election splash
With the election drawing nearer, the Chancellor surely won’t be able to resist the temptation to unveil “a pre-election splash tomorrow”, predicts Ruth Gregory, deputy chief uk economist at Capital Economics.
But any tax cuts won’t fully reverse the current squeeze, and could be followed by pain in 2025, Gregory warns:
Even if Mr Hunt spends the bulk of any money at his disposal, much of the planned £39bn (1.3% of GDP) tightening unveiled after the Truss/Kwarteng mini-budget will remain in place.
So this won’t be a big fiscal loosening, rather a partial reversal of the planned tightening. And any pre-election splash in 2024 will almost certainly be followed by hefty tax rises in 2025 after the election.
This fiscal tightening in 2025 is another reason to think that when interest rate cuts occur they will be faster and larger than investors currently anticipate.
Divya Sridhar, economist at PwC UK, agrees that Jeremy Hunt has some headroom for tax cuts in tomorrow’s autumn statement, as borrowing this financial year is almost £17bn below forecasts.
Having analysed today’s public finances, Sridhar explains:
Expenditure on net social benefits and debt interest payments were both higher in October 2023 compared to this time last year, with inflation driving up government costs.
“Debt interest payments in October were at £7.5bn, surpassing levels seen last year and more than 50% higher than the OBR’s forecast in March earlier this year. This was a result of RPI movements in recent months and is a contrast to September where interest payments were lower than expected.
“Looking ahead, all eyes are on the Autumn Statement due to be released tomorrow. The Chancellor has cautioned against expecting tax cuts. However, the recent public borrowing figures and the latest inflation data suggest that there will be some headroom. Nevertheless, upside risks to short-term inflation persist as natural gas futures have spiked again following geopolitical instability in the Middle East.”
Interest payable on central government debt hits October record
Inflation has pushed up the UK government’s borrowing, today’s public finances report shows.
In October 2023, the interest payable on central government debt was £7.5bn –- the highest interest payable in any October since monthly records began in April 1997.
That’s £1.1bn more than in October 2022, and £2.6bn more than the Office for Budget Responsibility (the fiscal watchdog) had predicted.
The interest payment on index-linked government debt (or gilts) is linked to the retail prices index measure of inflation.
The ONS says:
The large month-on-month increases in Retail Price Index (RPI) observed since early 2021 have led to substantial increases in debt interest payable, with the largest three months on record occurring in 2022 and 2023.
Introduction: Borrowing rises, but Hunt gets £17bn boost for tax cuts
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Britain borrowed almost £15bn to balance the public finances last month, more than expected, new figures show.
However, borrowing so far this financial year is nearly £17bn lower than forecast – giving room for some policy changes in tomorrow’s autumn statement.
Public sector net borrowing excluding public sector banks rose to £14.9bn in October, the Office for National Statistics reports. That’s £4.4bn more than in October 2022, and also more than September’s £14.6bn.
Economists had expected a smaller deficit last month, of around £12bn.
It’s the second highest October borrowing since monthly records began in 1993, after October 2020 (when Covid-19 pandemic spending pushed the deficit up to almost £20bn).
Public sector net borrowing, excluding public sector banks, in October 2023 was £14.9 billion.
£4.4 billion more than in October 2022 and the second highest October borrowing since monthly records began in 1993.
➡️ https://t.co/3pz6P3drkT pic.twitter.com/9e5524XQ9g
— Office for National Statistics (ONS) (@ONS) November 21, 2023
This takes borrowing this financial year (since April) up to £98.3bn, which is nearly £22bn more than a year ago.
But, despite some upward revisions to borrowing over recent months, it is still £16.9bn less than the Office for Budget Responsibility (OBR) forecast in March 2023.
That confirms that chancellor Jeremy Hunt does have some more ‘headroom’ to raise spending or cut taxes while sticking to the UK’s fiscal rules, when he delivers the autumn statement at 12.30pm on Wednesday.
Hunt has responded to the news, saying:
“We met our pledge to halve inflation, but we must keep on supporting the Bank of England to drive inflation down to 2%. That means being responsible with the nation’s finances.
“At my Autumn Statement tomorrow, I will focus on how we boost business investment and get people back into work to deliver the growth our country needs.”
Yesterday, prime minister Rishi Sunak hinted that business taxes could be cut to boost economic growth.
Sunak promised to reduce the tax burden “carefully and sustainably” and “over time”, stressing that he is focused on “the supply side” of the economy.
Also coming up today
The Treasury Committee will question the Bank of England governor, Andrew Bailey, and members of the Monetary Policy Committee (MPC) today, about inflation and economic data.
The committee are likely to quiz witnesses about the latest wage growth and unemployment, and if there’s a risk the Bank has overtightened monetary policy….
Last night, Bailey said there was more work to do to bring inflation back to its 2% target – and there remained a risk that borrowing costs might need to increase in the coming months.
The governor declared:
“Let me be very clear: it is far too early to be thinking about rate cuts.”
The agenda
-
7am GMT: UK public finances for October
-
10.15am GMT: Treasury committee to question Bank of England governor Andrew Bailey on inflation and economic data
-
1.30pm GMT: Canadian inflation rate for October
