UK government borrowing highest since pandemic

Government borrowing rose in July to the highest amount since the pandemic, with the worse-than-expected figures fuelling speculation of tax rises in the Autumn budget.

Borrowing — the difference between spending and tax income — hit £3.1bn last month, the highest level for July since 2021, according to the Office for National Statistics (ONS). It is £1.8bn higher compared to the same month last year and above City expectations of £1.9bn.

The Office for Budget Responsibility (OBR) expected borrowing to be £4.7bn less and come in at £46.6bn. Instead, it reached £51.3bn.

The ONS said borrowing was up because of rising social benefits, uprated due to inflation, and higher wages in the government.

Jessica Barnaby, the ONS deputy director for public sector finances, said: “July borrowing was almost £2bn higher this year than in 2023. Revenue was up on last year, with income tax receipts in particular growing strongly.

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“However, this was more than offset by a rise in central government spending where, despite a reduction in debt interest, the cost of public services and benefits continued to increase.”

Borrowing is usually lower in July compared to other months because the government has gathered a high number of self-assessed income taxes by that point in the year.

Higher government spending this year, though, means this is the fourth highest year-to-July borrowing since monthly records began in January 1993.

The worse-than-expected figures come as chancellor Rachel Reeves has hinted at tax raises and spending cuts in October to plug a £22bn black hole in the public finances.

Reeves said the Conservative government had given her the worst inheritance of any postwar chancellor. "There will be more difficult decisions" around spending, welfare and tax, she has said previously, when asked whether people should be prepared for taxes to be increased in the autumn.

The chancellor has already announced a raft of spending cuts, including to the winter fuel payment, which will now only go to those in receipt of pension credit.

She also revealed that adult social care charging reforms, which had been delayed by the previous government, would also not go forward.

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"Today's figures are yet more proof of the dire inheritance left to us by the previous government," chief secretary to the Treasury Darren Jones said.

"A £22bn black hole in the public finances this year, a decade of economic stagnation, and public debt at its highest level since the 1960s, with taxpayers' money being wasted on debt interest payments rather than on our public services.

"We are taking the tough decisions that are needed to fix the foundations of our economy, modernise our public services and rebuild Britain so we can put more money back into people's pockets across the country."

Public sector net debt stood at 99.4% of GDP at the end of July, up 3.8 percentage points from a year earlier and at levels last seen in the early 1960s.

Rob Wood, chief UK economist at Pantheon Macroeconomics, said the latest borrowing figures showed public spending was "already overshooting Budget forecasts".

"Further revisions could easily change the picture, but chancellor Rachel Reeves will likely have to raise taxes and borrow more in the medium term to cover spending more on public services," he added.

Alex Kerr, UK economist at Capital Economics, said: "Overall, today’s release highlights the tight fiscal backdrop that the Chancellor faces ahead of her first Budget on 30 October.

"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."

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