The UK government borrowed less than expected in June, providing a boost for Prime Minister Andy Burnham as he outlined plans to cut VAT on household electricity bills and promised a new direction for the economy.
The Office for National Statistics (ONS) reported public sector net borrowing of £16bn last month, which is £7.9bn less than in June 2025. This figure came in below City economists' predictions and was £300m less than the Office for Budget Responsibility's forecast, largely due to lower inflation-linked debt interest costs.
Burnham's VAT Cut and Fiscal Strategy
The latest snapshot comes as Burnham announced a fresh tax cut to support households with the cost of living by removing VAT from domestic electricity bills from 1 October. Chancellor John Healey said the cut would be funded this year from cancelling the digital ID programme.
Healey stated that he and Burnham had agreed to "work in lockstep to meet the fiscal rules with a buffer against uncertainty" alongside making plans to help cut the cost of living. "Fiscal control is the first duty of any chancellor. It is mine. And fiscal credibility is the bedrock for economic stability and for national security," he said.
Market Reactions and Fiscal Constraints
The prime minister has said he will stick to Labour's fiscal rules and the party's manifesto tax promises, making it tougher for him to pursue a radically different path from Keir Starmer. Retaining the self-imposed borrowing and debt constraints drawn up by Rachel Reeves has been seen as vital to avoiding a backlash in the markets. However, with spending pressures looming, Healey could be forced to consider tax increases or other measures to help finance the new prime minister's agenda.
Bond markets are finely poised amid expectations Burnham could run a looser approach to public finances than Starmer and Reeves. The new prime minister told reporters in the Downing Street garden on Monday that he could consider utilising "flexibility" in the fiscal rules to bolster public investment.
Debt Interest and Borrowing Figures
The latest ONS figures showed debt interest payments reached £11.8bn in June, a figure £5.3bn lower than the same month a year earlier, but still the fourth highest June on record. Borrowing was £57.6bn in the financial year to date, which is £3.7bn less than in the same period last year but £2.7bn above the OBR forecast.
Nabil Taleb, an economist at PwC UK, said the strain on public finances could leave Burnham and Healey facing difficult trade-offs. "With borrowing costs still sensitive and fiscal headroom limited, even modest commitments can carry significant consequences. What matters is whether ambition is matched by credible funding and a convincing grip on borrowing," he said.
Ruth Gregory, deputy chief UK economist at Capital Economics, commented: "June's public finances were a rare piece of good news for the new PM Burnham and chancellor Healey, but with the UK's debt burden still rising, there is limited scope for extra public borrowing."
