Public Borrowing Rises to Lower-Than-Expected £4.3 Billion

Undated image of British pounds coins and notes.

UK public net borrowing last month hit £4.3 billion, which was £3.4 billion more than in July 2022 and is the fifth-highest July borrowing bill since monthly records began in 1993.

The public sector net borrowing figure in July, published by the Office of National Statistics (ONS) fell below the £6 billion forecast by the Office for Budget Responsibility (OBR).

The figure was also lower than the expected £4.9 billion, produced by a Reuters poll of private sector economists.

The government’s independent fiscal watchdog, OBR, has also pencilled in a forecast for public borrowing in the financial year to date to be £68 billion. However, the ONS figures showed that this figure so far stood at £56.6 billion.

The largest part of the public sector is shaped by HM Revenue and Customs, the Department of Health and Social Care, the Department for Education, and the Ministry of Defence.

The relationship between central government savings and expenditure determines public sector borrowing.

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The ONS showed that in July the central government borrowed £17.9 billion, while its receipts were £85.2 billion. Tax receipts made up £65.6 billion of the total figure, as UK taxpayers saw increases in income taxes, corporation tax and Value Added Tax (VAT) receipts.

After January, July is normally the second-best month for public finances, as lots of payments come in from people who had filed their self-assessed tax receipts.

The ONS pointed out that self-assessment tax receipts in July came at £11.8 billion, which was £2.5 billion more than in July last year and nearly £2 billion more than the OBR forecast in March this year.

People’s incomes have been rising partly due to inflation, trying to keep up with soaring rates that came down from 10.1 percent in January to 6.8 percent in July. While the most recent data showed that inflation fell slightly more than expected, it still stands far higher that the government’s overall target of 2 percent.

The government strives to halve inflation by the end of the year. Chancellor Jeremy Hunt said it was “vital” to stick to the plan and “continue to act responsibly with the public finances.” Only this way, the inflation rate will drop, the debt will get reduced and the economy will grow, the chancellor added.

Risky Era

High inflation has prompted the government to increase benefit payments and disability cost-of-living payments. The ONS said that net social benefits in July 2023 were £23.1 billion, which is £0.4 billion more than last year’s figure.

With the economy likely to enter a mild recession later this year, Whitehall may not have room to reduce the tax burden on British businesses and households, which has been the main contributor to the central government’s revenue.

Operating in the “risky” era for public finances, the government faces borrowing figures at the highest levels since the mid-1940s, fueled by the pandemic in early 2020 and the energy and cost-of-living crisis from mid-2021.

Ahead of the Autumn Statement, which provides an update on the government’s plans for the economy, Mr. Hunt will have to consider the commitment made by the prime minister to increasing state pensions by almost 8 percent next year.

With the general election looming, the government could be cornered into choosing between measures that will maintain its borrowing on a reasonable level and announcing policies that will gain votes.

The economy has now become the centre of the political battle between the UK’s ruling Conservatives and the Labour Party opposition.

In its recent statement on X, formerly known as Twitter, Labour said that the Tories were responsible for UK’s slowest economic growth in the G7 this year.

Labour has vowed that with Keir Starmer as prime minister and Rachel Reeves as chancellor, the party will break the UK economy free from stagnation and “secure the highest sustained growth in the G-7.”