UK borrowing falls by more than forecast in early relief for new Chancellor
UK Government borrowing fell by a third last month, a bigger decline than forecasters were expecting and delivering some early relief to John Healey on his first day as Chancellor, official figures show.
The Office for National Statistics (ONS) said public sector net borrowing was £16 billion in June, which was 33.1% less than the same month last year.
It means the figure came in £300 million below the Office for Budget Responsibility’s (OBR) forecast, and £2 billion less than most economists had been expecting for the month.
This was largely because of lower inflation-linked debt interest costs compared with the previous year.
The borrowing figure shows the difference between what the Government spends in the public sector and what it makes from taxes and other income.
The lower-than-forecast figure may offer some respite to Mr Healey, who was appointed Chancellor by new Prime Minister Andy Burnham on Monday.
Mr Healey responded to the data by saying “fiscal control” was his “first duty” as Chancellor and that “fiscal credibility is the bedrock for economic stability and for national security”.
“The Prime Minister and I have talked about how we will work in lockstep to meet the fiscal rules with a buffer against uncertainty and how we’ll make life more affordable for working people right across the UK,” he added.
Former chancellor Rachel Reeves’ fiscal rules aimed to pay for day-to-day Government spending with tax revenues by the end of this decade.
The latest data showed that strong growth in tax receipts, particularly from income-related taxes and VAT, helped reduce borrowing in June compared with the previous year.
But higher spending on public services and benefits more than offset a reduction in debt interest costs – which is what the Government pays to service its debts.
The ONS said interest payable on Government debt totalled £11.8 billion in June, 31% less than the same month last year but still the fourth highest June on record.
This largely reflected volatility from gilts, or UK government bonds, linked to retail prices index (RPI) inflation.
Borrowing between April and June, the first three months of the financial year, was £56.7 billion, coming in £2.7 billion above the OBR’s forecast.
It also represents 1.9% of the UK’s gross domestic product (GDP), marking the 10th highest period since comparable records began in 1993.
Dennis Tatarkov, senior economist at KPMG UK, said: “Borrowing for the first three months of the current financial year was £2.7 billion above the OBR’s March projections.
“However, any immediate action on the cost of living could further strain public finances.
“John Healey could face pressure to loosen purse strings, but sticking to existing fiscal rules means more tax revenues or spending cuts may be needed.”
Mr Burnham announced on Tuesday that from October 1 energy bills will be VAT free, a policy measure costing £850 million.
It will be funded in part by scrapping Sir Keir Starmer’s digital ID project, which had been estimated to cost about £600 million a year over three years.
Thomas Pugh, chief economist at RSM UK, said the VAT cut on electricity bills would reduce tax revenue and therefore risks keeping Government borrowing costs higher for longer.
“The commitment to sticking to the fiscal rules means further tax rises are inevitable come the autumn budget,” he said.
“The risk is that more borrowing fuels inflation and pushes up gilt yields further, leaving the new chancellor having to borrow faster just to stand still.”
Published: by Radio NewsHub