Britain’s government again borrowed more than expected last month, according to official data released on August 21 that highlighted the tight financial backdrop for new Finance Minister Rachel Reeves as she readies her first annual budget.
Net borrowing rising
British public sector net borrowing was 3.101 billion pounds ($4.04 billion) in July, the Office for National Statistics said. It was the biggest July total since 2021, when the deficit surged during the COVID-19 pandemic.
Economists polled by Reuters had a median forecast of 1.5 billion pounds for public sector net borrowing, excluding state-controlled banks. The ONS highlighted rising social benefits, pushed higher by inflation, and rising government wages as drivers of increased spending compared with a year ago.
The figures did not include recent pay deals struck between the new Labour government, elected last month in a landslide victory, and public sector workers including junior doctors. Reeves has warned taxes will go up in her October 30 budget but she has ruled out increases in rates of income, corporation and value-added taxes, leaving scant room for manoeuvre to improve public services and boost investment.
Britain’s Deputy Finance Minister, Darren Jones, said latest data were more proof of the “dire inheritance” left by the previous Conservative government. So far the government has borrowed 51.4 billion pounds over the first four months of the 2024/25 financial year – about 5 billion pounds more than the Office for Budget Responsibility forecast. Reeves published an immediate review of the new government’s finances, which showed Britain on track for an overspend of 22 billion pounds against budget plans this financial year.
The opposition Conservative Party said Reeves had laid ground for increases in taxes on capital gains or inheritances.
Higher borrowings
“We expect … Reeves to borrow around 20 billion pounds per year more than planned in the March Budget for the next five years as well as funding medium-term spending with higher taxes,” Rob Wood, chief UK economist at Pantheon Macroeconomics, a consultancy, said.
