The government has admitted that some taxes will have to rise but said it will stick to its manifesto promise not to increase the burden on “working people” such as increasing VAT, national insurance or income tax.
Public borrowing for the first five months of the financial year reached £64.1bn, some £6bn more than forecasts by the Office for Budget Responsibility (OBR), which monitors the UK government’s spending plans and performance.
Increased borrowing in August means that national debt remains at 100% of the UK’s annual economic output – a level last seen in the early 1960s.
“There are only four answers to high debt – three are bad answers, one is good and the good one is economic growth,” Mohamed El-Erian, chief economic advisor at asset manager Allianz told the .
“The alternatives tend to be much for painful short-term and long-term so economic growth has to remain a mission.”
Latest figures showed the UK economy failed to grow in July, a blow for the new government, which has put boosting the economy as one of its key priorities.
Darren Jones, chief secretary to the Treasury, said the shape of the public finances meant Labour was “taking the tough decisions now to fix the foundations of our economy, so we can rebuild Britain and make every part of the country better off”.
The government has claimed it faces a £22bn “black hole” in the public finances this year, but about £9bn of that reflects Chancellor Rachel Reeves’s decision to award above-inflation public sector pay deals.
