Government borrowing overshoots forecasts ahead of Healey's first Budget
Official figures show the government borrowed £1.8bn in July, against expectations of a surplus, as Chancellor John Healey prepares his first Budget with little room for further borrowing.
The government borrowed slightly more than expected in July, according to figures published as Chancellor John Healey draws up his first Budget, with economists warning that the overshoot will restrict his room for manoeuvre. The Office for National Statistics said borrowing during the month stood at £1.8bn, against official forecasts for a surplus of £500m—meaning the government borrowed £2.3bn more than predicted. The figure was significantly lower than June's £16bn, with a surge in self-assessed income tax receipts boosting revenues, but economists said the public finances would come under renewed pressure when that one-off lift, typical for July, runs out.
Healey has made clear he will oversee "strong fiscal discipline" at the Budget on 27 October, limiting how much the government can spend. He has adopted his predecessor Rachel Reeves' fiscal rules, which commit the government to funding all day-to-day spending through tax receipts by the end of the decade. Responding to the figures, the Chancellor said: "We are cutting the deficit faster than any other G7 economy, while giving people a bit of breathing space with cost of living pressures and focusing support to get young people into work."
The ONS said borrowing from April to July, the first four months of the fiscal year, reached £56.7bn—lower than last year but £2.3bn higher than forecasts from the Office for Budget Responsibility, which the government uses when drawing up spending plans. Experts pointed to increased welfare spending, including benefits and the state pension, with social payments £2bn higher than the same period last year. Senior economist Ashley Webb of Capital Economics said the figure continued a "run of bad news" for the economy and that "there will be little scope to raise borrowing in the Budget later this year." He added that the overshoot "will probably get bigger" as economic growth slows and the government rolls out more measures to support households with the cost of living.
The overall debt pile is approaching £3tn, having grown by £127.2bn over the past year. Joe Nellis, head of economic research at accountancy MHA, said the figures would not "prevent difficult decisions that must be made in the upcoming October Budget," but warned that Healey would have to find "additional tax revenue, tighter control over public sector spending and changes elsewhere" to balance the books. "Failure to do so will unsettle the financial markets and potentially push up the cost of government borrowing still further," he said.
The Conservatives said Labour's spending would leave "ordinary families" to cover the bill. Shadow Chancellor Mel Stride said: "We spend more on just the interest of our soaring debt than we do on our defence, police, and prisons combined. We simply cannot afford the price of Labour." The ONS also reported lacklustre retail sales in July, falling 0.5% from June, with analysts attributing the drop to a surge of hot weather and a World Cup-induced boost in sales the previous month. Clothing and footwear saw the slowest growth since May last year.