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Watchdog reveals £18bn hole in Boris Johnson’s UK budget

Tom Belger
Finance and policy reporter
Britain's prime minister Boris Johnson, right, and chancellor Sajid Javid, left, speak to voters during the election. Photo: Ben Stansall/Pool Photo via AP

Britain’s budget watchdog is warning UK government borrowing will be £18.3bn higher than previously thought this year, after it changed how student loans, pensions and corporation tax are counted.

It marks an early headache for Boris Johnson after his landslide election victory, coming just as the re-elected prime minister hopes to ramp up spending on the NHS and infrastructure.

The independent Office for Budget Responsibility (OBR) published revised forecasts on the state of the public finances in a new report on Monday. They were due to be published last month, but were controversially delayed by the government because of the election.

The OBR said its new forecasts no longer included “fiscal illusions” about student loans, fully incorporating them on the government’s balance sheet. The changes include interest no longer accruing on loans that are not expected to be repaid, as a significant proportion of graduates never repay their loans in full.

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MPs had warned in a report last year that higher education spending “escapes scrutiny,” as neither the issuing of loans to students or selling-off of loans at a loss affects the government deficit.

The revised student loan figures add £13.4bn to public sector net borrowing in 2019-20 alone.

Other changes to accounting mean corporation tax receipts are also lower than previously thought, while government pension liabilities for council staff and insolvent firms have been included for the first time.

The changes combined add £18.3bn to UK government borrowing this financial year, taking the total to £47.6bn.

The accounting shakeup adds a total of £116.4bn to borrowing over the six years from 2018-19 to 2023-24.

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The figures could complicate the re-elected Conservative administration’s plans to turn on the spending taps while still meeting their budget rules.

Johnson’s plans to raise spending on the NHS made the headlines over the weekend, with his government set to announce new legislation to protect NHS budgets.

The Sunday Times also reported Johnson could be “planning to pump nearly £80bn” into rail, roads, buses and other infrastructure in a bid to hold onto former Labour voters in the north and Midlands.

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