UK government borrowing overshot official forecasts in the last fiscal year, highlighting the constraints on Chancellor Jeremy Hunt as he eyes pre-election tax cuts. 

The budget deficit totalled £120.7 billion (S$203.1 billion) in the 12 months through March, down from £128.3 billion a year earlier but more than the £114.1 billion forecast by the Office for Budget Responsibility just last month. 

The shortfall in March alone was £11.9 billion, the Office for National Statistics said on Tuesday (Apr 23). Economists had expected a deficit of £10 billion. The national debt hit £2.69 trillion, or 98.3 per cent of GDP – levels last seen in the early 1960s.

The figures underscore the pressure on the public finances as Prime Minister Rishi Sunak prepares for a general election later this year, possibly as early as October. 

With opinion polls pointing to a landslide defeat for the ruling Conservatives, Sunak and Hunt have made no secret of their desire to cut taxes once more before Britain goes to the polls. However, a £10 billion giveaway last month has left them with little fiscal headroom and the outlook remains hampered by what economists say are weak growth prospects.

That’s a problem too for the opposition Labour Party, which is also promising to cut debt as a share of the economy within five years if it comes to power.  

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Competing forces affected the public finances in 2023-24. Welfare payments and government spending on wages, goods and services were driven up by elevated inflation. Net investment also increased. 

On the other hand, debt interest fell sharply – the result of a decline in the Retail Price Index gauge of inflation against which a quarter of the government debt is priced. Spending was also contained by the withdrawal of energy support programmes.

Government revenue rose strongly, as inflation and a resilient labour market boosted income tax receipts. 

Hunt reiterated his determination to get debt under control, blaming the figures on spending that flowed from the pandemic and to contain a cost-of-living crisis sparked by Russian President Vladimir Putin’s invasion of Ukraine.

“Debt increased in recent years because we rightly protected millions of jobs during Covid and paid half of people’s energy bills after Putin’s invasion of Ukraine sent bills skyrocketing,” Hunt said in a statement. “We can’t leave future generations to pick up the tab.” BLOOMBERG