Government borrowing came in at £1.8 billion in July, confounding forecasters and sharpening the fiscal pressure on John Healey ahead of his first Budget, according to figures published by the Office for National Statistics (ONS).
The ONS is the UK’s official statistics body. The July figure was £700 million, or 68.7%, higher than a year ago, at a time when most economists had expected borrowing to be zero. The independent Office for Budget Responsibility (OBR), which provides official forecasts for the public finances, had gone further, predicting a £500 million surplus for the month.
What the borrowing figures actually show
The overshoot came in spite of a record July for income tax receipts. Income tax brought in £17.1 billion last month, up £1.7 billion on a year ago, according to the ONS. July is traditionally one of the stronger months for income tax because of the self-assessment payment deadline at the end of the month.
Spending growth cancelled out those gains. Social benefit payments rose by another £2 billion compared with a year ago, and interest on government debt climbed £700 million to £7.7 billion. Grant Fitzner, chief economist at the ONS, said: ‘Borrowing was slightly higher this month than in July last year, with spending growth outpacing higher receipts, including from self-assessed taxes which often feed in more strongly in July.’ The ONS also noted that some delayed July self-assessment payments may filter through into the August data.
Zooming out to the full financial year so far, borrowing in the first four months stood at £56.7 billion, more than the OBR had forecast, though £6 billion or 9.6% lower than the same period a year earlier. A £2.7 billion downward revision to data covering the first three months of the year contributed to that improvement.
Total UK debt now sits just shy of the £3 trillion mark, at £2.985 trillion, equivalent to 94.1% of gross domestic product (GDP).
John Healey Budget pressure and the cost-of-living backdrop
The figures land at a politically awkward moment. According to The Guardian, the Budget is scheduled for 28 October, giving Healey little time to set out how he intends to square the books.
Healey responded to the borrowing data directly, saying: ‘Fiscal discipline is the bedrock of our UK economic stability and national security, which is why we are committed to meeting our fiscal rules, with a buffer against global uncertainties. We are cutting the deficit faster than any other G7 economy while giving people a bit of breathing space with cost-of-living pressures and focusing support to get young people into work.’
The government has already announced a range of cost-of-living measures ahead of the Budget. According to the BBC, those include scrapping VAT on domestic electricity bills, reducing business rates for pubs, and capping bus fares in England. The BBC also reports that Prime Minister Andy Burnham has committed to sticking to Labour’s fiscal rules on spending and borrowing, as well as the party’s 2024 manifesto pledges not to increase income tax, VAT, or National Insurance contributions.
That set of constraints leaves the Chancellor with limited room for manoeuvre. Thomas Pugh, chief economist at RSM UK, put it bluntly: ‘The commitment to sticking to the fiscal rules means further tax rises are inevitable come the autumn Budget. The risk is that more borrowing to spend fuels inflation and pushes up gilt yields further, leaving the new Chancellor having to borrow more just to stand still.’ Gilts are bonds issued by the UK government to raise money; when their yields rise, the cost of government borrowing goes up.
The figures also arrive in the context of a broader shift in how economic policy is being managed. Days before the ONS release, Burnham said in an interview with The Times that a new Manchester-based satellite office of Downing Street would take over responsibility for growth, while the Treasury focuses on controlling the public finances. Burnham said that the Treasury’s dual duties of growing the economy and controlling public finances had hampered its ability to do either.
The October Budget will now be the first concrete test of whether the government’s fiscal rules and its cost-of-living commitments can hold together under the weight of a borrowing figure that nobody predicted.
