Government borrowing reached its highest amount since the start of the pandemic in July, according to data from the Office for National Statistics (ONS). This coincides with an increase in public sector pay, resulting in a £3.1 billion difference between government income and spending on public services.
This is the first time since 2021 that a July has seen such high levels of borrowing, indicating the persistent impact of the pandemic on the UK economy. The government has previously committed to borrowing solely for investment purposes and to reduce debt.
Despite expectations from independent forecasters, such as the Office for Budget Responsibility (OBR), that borrowing would be £4.7 billion lower than the £51.4 billion recorded, the figures surpassed expectations. The OBR attributes this to higher-than-anticipated spending by government departments, which was largely driven by an increase in public sector pay.
This trend of increased government spending is expected to continue, with the OBR stating that “departmental spending for 2024-25 could significantly exceed the March 2024 forecast.” However, the cost of borrowing this debt, measured by interest payments, has been reduced, according to the ONS.
The timing of these figures is significant, as Chancellor Rachel Reeves is expected to announce tax increases in her first October budget, citing a £22 billion deficit in the public finances. Today’s data and comments from the Treasury are likely to further support this expectation, highlighting the difficult choices the Chancellor must make.
Chief Secretary to the Treasury, Darren Jones, stated that “today’s figures are yet more proof of the dire inheritance left to us by the previous government.” He emphasized the impact of the pandemic on the economy, with a decade of economic stagnation and public debt at its highest level since the 1960s.
Jones also stressed the importance of making tough decisions to “fix the foundations of our economy, modernize our public services, and rebuild Britain.” He believes this will ultimately lead to more funds being available for public services and taxpayers across the country.
Despite these high levels of borrowing, data released last week showed positive signs for the economy, including lower inflation and unemployment, as well as higher-than-expected growth. This indicates a strong economy, but also highlights the challenges the government will face in balancing economic recovery and managing the deficit in the coming months.
