The scale of the challenge facing Chancellor of the Exchequer Rachel Reeves ahead of the autumn budget was made clear with Britain's national debt rising to its highest level since the 1960s and consumer confidence collapsing.
The numbers are UK Office for National Statistics (ONS) The government's outstanding debt hit 100 percent of gross domestic product in August, the highest level since 1961, as monthly borrowing rose more than expected, the report showed.
Labour has repeatedly warned that any economic legacy from the Conservatives will require “painful” decisions, including tax hikes and cuts to welfare benefits and other spending, ahead of the budget on October 30.
Consumer confidence plummeted in September to the lowest level since March, according to figures released on Friday by research firm GfK, as households worried about Chancellor Reeves' winter fuel cuts and the prospect of further spending cuts in the Budget.
“Consumers' reaction to the government's warning suggests that Chancellor Reeves will need to be careful not to overdo it with fiscal tightening next month,” said Elliott Jordan-Doak, senior economist at consulting firm Pantheon Macroeconomics.
The latest ONS data showed government borrowing – the difference between public sector spending and income – was £13.7 billion, up £3.3 billion from the same month last year and the third largest August deficit since monthly records began in January 1993.
The national debt (the sum of all deficits) rose 4.3 percentage points in the 12 months to August, reaching 100% of GDP, meaning a total debt mountain equal to the annual value of everything produced in the economy.
Treasury Secretary Darren Jones said the figures showed the dire financial situation left by the Conservatives and that Labour would have to take “tough decisions” to rebuild the economy.
“When we took office, we inherited an economy that was not working for working people. Data today shows that borrowing in August was the highest it has ever been, excluding the pandemic. Debt is 100% of GDP, the highest level since the 1960s,” he said.
The figures come as pressure grows for the Government to ease tax increases and spending cuts made in October 30's Budget, after Chancellor Keir Starmer urged people to prepare for “painful” decisions following the revelation that Labour has a £22 billion hole in its finances.
In August, Governor Reeves announced that as the first step in his debt reduction plan, he would eliminate winter fuel subsidies for most pensioners, shelve welfare reform plans, and cut investment in roads, rail and hospitals.
But there are growing concerns within Labour that pessimism is hurting the government, while economists have warned that measures that dent consumer confidence could have a negative impact on economic growth and jobs.
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The ONS's latest financial position shows that while tax receipts rose significantly in August, this was more than offset by increases in spending, mainly due to higher benefits and higher spending on public services, due to higher operating costs and wage increases.
Official figures showed the debt ratio was over 100% last year, but the ONS said a revision meant the debt ratio now equals the size of the economy for the first time since 1961.
Matt Swannell, principal economic adviser at EY Item Club, said: “Almost halfway through the financial year, the UK's fiscal position remains challenging and Treasury analysis suggests the situation could worsen further over the remainder of the year.”
“The government is likely to be forced to increase spending in the coming months due to its acceptance of the Public Sector Pay Commission's pay increase recommendations and non-personnel cost overruns in various government departments.”
