Wannabe PM Andy Burnham has been given a sobering reminder of one of the big headaches he would face if he ever gets the keys to Number 10 after figures showed government borrowing soared last month.
Chances are that, at 7am on Friday, he may have had a whole bunch of other pressing demands than poring over the Office for National Statistics’ “public sector finances” data for May.
Yet, when the dust settles on his landslide Makerfield by-election win, the state of the nation’s finances will ultimately determine what – if he were to succeed Sir Keir Starmer as PM – he can and can’t do.
Borrowing – or the difference between what the government raked in from taxes and dished out – was £23.3billion in May. That was £5.4billion more than a year ago and, particularly worrying, £5.6billion more than forecast by the Office for Budget Responsibility.
And here’s the really scary part: nearly half that – £11.7billion – was central government’s debt interest payments. The amount the country is shelling out in interest was £4.1billion (54.4%) more than the same month last year and the highest for any May on record.
It meant we handed over £377million every single day last month just to keep our heads above water.
It follows many years of heavy borrowing that has seen our national debt rocket to a truly staggering £2.94trillion, with the ominous £3trillion milestone within sight.
Some of that is due to bad mistakes of the past, but much is also due to the state stepping in because of forces beyond any domestic government’s control, from the 2008 financial crisis to the Covid pandemic.
But it means the current government of the day – whatever they may promise when they’re not controlling the purse strings – is immediately hemmed in. That doesn’t mean their hands are tied, however, but it does mean having to think smart.
Number 10 and the Treasury will have been closely watching the bond markets in the wake of the by-election result for any sign of investor nervousness about Mr Burnham’s victory. Like it or not, the government is reliant on gilts – UK government bonds – to meet its borrowing needs.
Dan Coatsworth, head of markets at broker AJ Bell, explained the reaction: “Andy Burnham’s by-election victory hasn’t fazed bond markets, but this might simply be the calm before the storm.
“Keir Starmer has so far indicated he won’t step down, which means there could be a leadership challenge and that could cause unease on the markets. Investors hate uncertainty and politics has a habit of making their heads spin.”
Much will happen in the coming weeks and months politically, with big implications economically.
And while the drama may lay elsewhere, it will be the state of the economic and trying to kick start it into life, along with possible spending cuts and tax rises that may well determine who resides in Number 10, and for how long.
