A minister defended public sector pay rises to avert strikes as official figures showed they were fuelling Government borrowing.
The Office for National Statistics on Tuesday revealed that public sector net borrowing in the first half of the financial year hit £79.6 billion. That is £1.2 billion more than a year earlier and £6.7 billion higher than forecast by the independent fiscal watchdog, the Office for Budget Responsibility.
The ONS said that government borrowing rose to £16.6 billion last month, up £2.1 billion year-on-year and marking the third highest September borrowing since records began as bills for public sector pay hikes rolled in.
This came despite the first fall in central government benefit payments since early 2022, in part due to Labour’s decision to means test the winter fuel allowance, which is paid out in November and last year cost around £2 billion.
Jessica Barnaby, ONS deputy director for public sector finances, said: “While tax revenue increased, this was outweighed by increased spending, partly due to higher debt interest and public sector pay rises.”
Treasury Chief Secretary Darren Jones rushed to defend the pay increases for public sector workers while at the same time saying that the state of the public finances meant there would be “difficult decisions” in the October 30 Budget.
“We have inherited a £22 billion black hole in the country’s public finances, including no plan to fund pay deals for millions of public sector workers,” he said.
“Strikes cost at least £3 billion last year, so it was the right thing to do to end those damaging disputes.
“Resolving this black hole at the Budget next week will require difficult decisions to fix the foundations of our economy and begin delivering on the promise of change.”
Sir Keir Starmer’s government claims the Tories left unfunded pay awards, including for teachers, and had failed to agree deals with junior doctors and train drivers to stop their walkouts.
But Mr Hunt told The Financial Times: “It’s one of the oldest tricks in the book to try to blame your predecessor for difficult decisions you have to take.
“It’s an even older one to cover up what you’re planning to do before an election to get elected.”
The Labour government is expected to try to raise tens of billions of pounds in a raft of tax rises in the Budget, many of which could hit London hard.
They include raising National Insurance for employers which Mr Hunt warned against doing.
“I’m really worried that Labour is going to trash an economy which has better growth prospects than it has for many years,” added the former Cabinet minister who was appointed Chancellor in autumn 2022 after Liz Truss sacked Kwasi Kwarteng from the post following the disastrous “mini Budget” which sparked economic mayhem in Britain.
Other tax rises could include inheritance tax, capital gains tax, changes to stamp duty and fuel duty, with a possible extension of the freeze on income tax thresholds for another two years.
Alison Ring, director of public sector and taxation at accounting institute the ICAEW, said the latest borrowing figures “emphasise the weak state of the public finances ahead of the new Chancellor’s first Budget next week”.
Ms Reeves has signalled plans to announce changes to the fiscal rules, which provide discipline on borrowing and spending, to allow her to borrow more to finance projects in sectors such as housing, roads and energy.
