Healey oversees unexpected rise in borrowing in first month as Chancellor
John Healey oversaw an unexpected deficit in the public finances in his first month as Chancellor, according to new data, in a sign the government may be more restricted than first thought ahead of its first budget.
New figures released on Friday showed that government borrowing hit £1.8bn in July. Markets had expected the Office for National Statistics to show that there was no difference between expenditure and receipts in July. The figure was also above an estimate for borrowing by the fiscal watchdog for the month.
ONS chief economist Grant Fitzner said: “Public sector borrowing was lower in the financial year to date than in the same period last year, both in total and as a share of the economy. However, it is above the OBR spring forecast.
“Conversely, borrowing was slightly higher this month than in July last year, with spending growth outpacing higher receipts, including from self-assessed taxes which often feed in more strongly in July.”
The ONS also found that public sector debt remained below £3 trillion despite suggestions it had jumped over the threshold. Debt interest payments in July rose to £7.7bn.
Dennis Tatarkov, senior economist at KPMG UK, said that short-term measures on the cost of living and the state propping up the UK economy after a price shock from the Iran war “are likely to keep near term borrowing elevated”.
“Looking ahead to the Autumn Budget, while the Chancellor may be tempted to use leeway in the fiscal rules to boost spending, the market’s appetite for more debt is limited, especially at a time when the UK Government faces the highest borrowing costs in the G7,” Tatarkov said.
The latest release is one of the last sets of statistics that Chancellor John Healey will see on the state of UK public finances before his first Budge on 28 October.
He will only get a glimpse of August and September data before delivering the Andy Burnham government’s fiscal agenda for the next year.
Healey defended his first month of management over public finances.
The Chancellor said the government remained to the fiscal rules and that “fiscal discipline is the bedrock of our UK economic stability and national security”.
“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,” he said.
Shadow chancellor Sir Mel Stride said “we simply cannot afford the price of Labour”.
Stride said: “They already plan to borrow over a quarter of a trillion pounds more than the plans they inherited, tapping the nation’s credit card while the bailiffs are at the door. It is ordinary families, their children and grandchildren who are left to cover the bill.”
Healey is ‘not required’ to raise taxes
On Thursday, Panmure Liberum economist Simon French said Healey would not have to raise taxes at the Budget to remedy the state of public finances in the short term, as Reeves may have had to do so to build a fiscal buffer last year.
While French suggested the fiscal buffer was closer to £15bn than £22.7bn, he suggested the Chancellor was likely to hike taxes to fund spending pledges on defence and the cost of living.
The government have already slapped down reports around property tax reforms in a bid to gain control over another autumn of speculation.
Ministers are currently enjoying a break from parliament before a return that will start the pre-Budget run-in lasting around around two months.
Burnham and Healey’s fiscal plans could yet be thwarted by President Trump’s war against Iran as trade disruption across the Strait of Hormuz has continued throughout peace negotiations.
Earlier this year, the Office for Budget Responsibility warned that it had previously underestimated government borrowing levels in the wake of Russia’s full-scale invasion of Ukraine.
The forecast review suggests the fiscal watchdog could take a more cautious view on how public finances respond to the latest energy price shock over the next few years.