Government borrowing unexpectedly rose to £1.8 billion in July, according to official figures, revealing the fiscal squeeze facing new Chancellor John Healey ahead of his inaugural Budget on October 28.
The Office for National Statistics (ONS) said borrowing stood at £1.8 billion in July, £700 million or 68.7% higher than a year ago, confounding expectations. Most economists had forecast zero borrowing last month, while the independent Office for Budget Responsibility (OBR) had predicted a £500 million surplus.
Record income tax receipts fail to offset spending
The borrowing hike came despite a record July for income tax receipts, which hit £17.1 billion – up £1.7 billion on a year ago. However, spending outweighed the tax boost, with an extra £2 billion spent on social benefits compared with a year ago, while interest payments on government debt rose £700 million to £7.7 billion last month.
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.”
Debt nears £3 trillion milestone
In the first four months of the financial year so far, borrowing was also more than the OBR forecast, at £56.7 billion, though this was £6 billion or 9.6% lower than a year earlier. Total UK debt now stands at £2.985 trillion, or 94.1% of gross domestic product (GDP), just shy of the £3 trillion milestone.
Mr Healey said: “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.”
Political context and upcoming Budget
The figures come days after Prime Minister Andy Burnham said the new Manchester-based satellite office of Downing Street will take over responsibility for growth, while the Treasury will focus on controlling the public finances. In an interview with The Times, Mr Burnham said the Treasury’s dual duties of growing the economy and controlling public finances hampered its ability to do either.
The ONS added income tax receipts may also filter through to the August data due to some delayed July self-assessment payments.
