London (Parliament Politics Magazine) – Substantial spending on public services and welfare compelled government borrowing to £3.1bn last month, more than double its status in the same month a year earlier and more sinister than experts had expected.
What caused the significant increase in UK government borrowing in July?
Fuelling the debate between Labour and the Conservatives over the health of the public finances, the deficit was the most elevated for a July in three years and £3bn more elevated than expected by the government’s spending watchdog, the Office for Budget Responsibility (OBR).
How does July’s borrowing compare to previous years and expectations?
The Office for National Statistics (ONS) stated strong growth in public spending was the major factor behind the borrowing overshoot. Jessica Barnaby, the ONS deputy director for public sector finances, stated: “July borrowing was almost £2bn more increased this year than in 2023. Revenue was up on last year, with income tax receipts in particular developing strongly.
“However, this was more than compensated by a rise in central government spending where, despite a decline in debt interest, the cost of public services and benefits persisted to increase.”
The UK’s public finances are typically firm in July, owing to the increase provided by income tax self-assessment returns. In 2023, the UK held to borrow £1.3bn in July to cover the hole between the state’s revenue and its spending.
What are the implications of the £3.1 billion borrowing for future fiscal policies?
Analysts cautioned that the disappointing borrowing figures would result in a strict budget from the chancellor, Rachel Reeves, on 30 October. Alex Kerr, a UK economist at Capital Economics, stated the figures highlighted the tight fiscal situation faced by Reeves. “We still think that she will look to raise an additional £10bn a year via higher taxes in the budget and increase borrowing by around £7bn a year,” Kerr stated.
Isabel Stockton, a senior analysis economist at the Institute for Fiscal Studies, stated: “All of the data is inadequate and we should be careful of overinterpreting it. But the early indications are that better-than-expected increase figures won’t be enough to keep Rachel Reeves from tough choices in her first budget. The variety of in-year spending pressures identified at last month’s spending audit and the constant, and well-known, pressures confronting many public services suggest that the accompanying spending review for 2025-26 could be a particularly difficult exercise.”
Darren Jones, the chief secretary to the Treasury, stated: “Today’s figures are yet more evidence of the dire inheritance left to us by the earlier government. A £22bn black spot in the public finances this year, a decade of economic stagnation, and public debt at its most elevated level since the 1960s, with taxpayers’ money being squandered on debt interest payments rather than on our public services.”