Despite the energy cap bill, borrowing is growing at a slower pace than expected

Government debt rose less than expected last month, despite spending billions extra on an energy price cap and covering initial losses from the Bank of England’s bond-buying scheme.

Total public debt rose to 13.5 billion pounds in October, below economists’ forecasts of 22 billion pounds and down from 19 billion pounds in September, official figures showed. The figures are still £4.4bn higher than the £9.3bn in debt in the same month last year.

The government collected tax receipts of £70.2 billion, up 6.3 per cent on October 2021, thanks to increased income tax and national insurance contributions and a 50 per cent rise in corporation tax receipts.

The Office for National Statistics said October was the first month the government paid back losses from the central bank’s £800m quantitative easing programme. The Treasury is offsetting losses on the Bank’s £836bn of sovereign debt reserves. Rising interest rates mean that the Bank is making a loss on its gilt holdings, paying more on its reserves to commercial banks than it earns from bond holdings.

The Office for Budget Responsibility warned last week that the Treasury would need to raise £133bn over the next six years to cover losses from QE, reversing more than a decade of gains from the stimulus programme.

Borrowing rose by nearly £3 billion last month, with the government introducing a household energy price cap that will freeze average bills at around £2,500 until April, and a similar freeze for businesses. According to the OBR, the cap will cost £25bn over the next six months, but could be more expensive if gas prices rise in the market. The ONS said the government’s debt interest bill reached £6.1 billion last month. Interest costs on debt have doubled to £120 billion over the past year as higher interest rates put pressure on public finances.

Last week, the OBR warned that the debt interest bill would be the biggest single cause of financial deterioration over the next few years, with the cost of servicing the government’s bonds outstripping spending on health care.

Rising spending on welfare, pensions and debt interest, combined with falling tax receipts from a slowing economy, will increase government debt by around £60bn a year, according to the OBR.

Jeremy Hunt said “the government is right to raise debt to support millions of businesses and families after the pandemic and Putin’s illegal intervention in Ukraine”.

The Chancellor added: “It is vital that we put public finances on a more sustainable path to tackle inflation and deliver the economic stability needed for long-term growth. There is no easy way to balance the country’s books, but we have taken the necessary decisions to keep debt down while taking proactive steps to protect jobs, public services and the most vulnerable.

Last week, Hunt announced two new financial rules to help restore market confidence in Britain. The government wants to reduce its total debt-to-GDP ratio by 2027-28 and limit the deficit below 3 percent of GDP in the same year.

Analysts at Citi last month expected borrowing to reach £29bn and said the figures would help total borrowing this year fall below the OBR’s forecast of £177bn.

Ruth Gregory at consultancy Capital Economics said the rise in borrowing would “only embolden the chancellor to keep public finances under tight control”.

Separately, the government may have to pay more than £30bn to the Bank next year and also in 2024 to cover losses on its quantitative easing programme, the central bank said in a report released yesterday.