Tough budget looms after UK deficit overshoots forecasts. Business Today | The Guardian
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The latest public finance figures show that the UK borrowed more than twice as much as economists expected last month to balance the books.
Public borrowing hit £3.1bn in July, which is £1.8bn more than in July 2023. It is the highest July borrowing since 2021 (when the Covid-19 pandemic drove up spending and hit tax revenues).
City economists had expected lower borrowing, of £1.5bn.
Crucially, the fiscal watchdog, the Office for Budget Responsibility, had estimated that the UK would only need to borrow £100m in July – which is typically a strong month for tax receipts, such as income tax self-assessment returns.
So, the black hole in the public finances that the chancellor, Rachel Reeves, warned of in July has just got deeper.
Although the tax take increased in July, this was more than wiped out by higher government spending.
The deputy director for public sector finances at the Office for National Statistics, Jessica Barnaby, 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. 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.”
The chief secretary to the Treasury, Darren Jones, said that the jump in UK government borrowing last month showed the “dire inheritance” left by the previous government: “Today’s figures are yet more proof of the dire inheritance left to us by the previous government.
“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.”
Digging into July’s public finances, we can see that higher tax receipts lifted central government’s income to £91.0bn in July – £1.7bn more than in July 2023.
Tax receipts increased by £2.1bn to £71.2bn, including a £1.7bn increase in income tax receipts, £300m more in corporation tax, and £200m of VAT.
But there was a £1.1bn drop in “compulsory social contributions”, to £13.8bn, because of the reductions in the main rates of National Insurance made by the former chancellor Jeremy Hunt.
Self-assessment tax receipts rose by £1.1bn year on year to £12.9bn. However, that is £700m less than the OBR had forecast (one reason the deficit was much higher than the £100m expected by the fiscal watchdog).
July’s public finances figures continued the recent run of bad news on the fiscal position, said Alex Kerr, a UK economist at Capital Economics.
Kerr reckons that public borrowing is on track to overshoot the OBR’s 2024-25 forecast of £87.2bn by £4.7bn.
Even if this overshoot does not persist, Capital Economics expect the chancellor to raise taxes and increase borrowing at the budget on 30 October.
The agenda
• 9am BST: South Africa’s inflation report for July
• Noon BST: US weekly mortgage approvals data
• 3.30pm: EIA to release US crude oil inventory data
• 7pm: minutes of July’s Federal Reserve interest rate-setting meeting released
We’ll be tracking all the main events throughout the day ... |
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