Rachel Reeves oversees higher government borrowing than expected
Government borrowing has overshot predictions, putting Rachel Reeves under more pressure to take control of public finances.
The Office for National Statistics (ONS) said public sector borrowing hit £20.7bn in June, higher than market expectations which pencilled in just over £17bn in borrowing.
Borrowing in June this year was some £6bn more than at the same time last year, the ONS also revealed.
Interest payments covering government debt, which has continued to rise closer to 100 per cent of UK GDP, was £16.4bn, more than double levels seen last year.
The latest figures are likely to keep Rachel Reeves on edge as she surveys the effects of higher employers’ national insurance contributions (NICs), which kicked into effect in April.
“The rising costs of providing public services and a large rise this month in the interest payable on index-linked gilts pushed up overall spending more than the increases in incomes from taxes and national insurance contributions, causing borrowing to rise in June,” said Richard Heys, acting chief economist at the ONS.
Darren Jones, chief secretary to the Treasury, said: “We are committed to tough fiscal rules, so we do not borrow for day-to-day spending and get debt down as a share of our economy.
“This commitment to economic stability means we can get on with investing in Britain’s renewal, including fixing our NHS, strengthening our national defence and building hundreds of thousands of affordable homes through our plan for change.”
Shadow business secretary Andrew Griffith accused Rachel Reeves of being “no more capable of balancing her books than a first year undergrad in freshers’ week”.
“We need a plan to cut spending now to avoid more autumn tax hikes,” he added.
Capital Economics’ Alex Kerr said while borrowing was still in line with estimates pencilled in by the Office for Budget Responsibility (OBR), “things will probably get worse” as borrowing forecasts look set to be revised up.
Labour ministers have claimed that public finances were on stable ground following a historic Autumn Budget where employers, home owners and investors were targeted with extra taxes.
Fresh ONS data showed tax receipts came in at just under £87bn, slightly below the OBR’s forecast.
But leading forecasters believe the Treasury is preparing for another tax-heavy Budget given the government spending commitments and pressures on finances.
Rachel Reeves battles public finances
At the Spring Statement, Rachel Reeves left herself £9.9bn in headroom, which think tanks and City analysts said left the Chancellor dependent on a volatile world economy.
Since March, the government has rowed back on welfare reforms, which will now cost some £6bn, while President Trump’s tariffs and low investment has set the UK on course to suffer from lower growth than expected.
Top wonks believe Reeves will have to raise as much as £30bn in taxes to plug a hole in public finances.
Labour’s manifesto pledge to not raise taxes on working people has narrowed down options for the Treasury.
Former Labour Party leader Neil Kinnock has led calls for a wealth tax to be introduced, whereby assets over £10m would be levied at a two per cent rate.
Others have predicted that Rachel Reeves will freeze income tax thresholds for an extended period, often referred to as a “stealth tax” that could hit lower earners and raise an extra £9bn a year.
Taxes that could be on the table include a higher bank surcharge, changes to pension tax relief and
The government has refused to comment on any possible tax rises it could make later this year.
The other option could be to tweak fiscal rules and risk a battle with bond markets.
The Institute for Fiscal Studies (IFS) said future Budgets could avoid constant policy “tinkering” by bringing forward a change that is set to come in 2027.