Labour Government Borrowing Highest Amount Since The Pandemic in July

Government borrowing above expectations and highest since pandemic as public sector pay rose.

Official data showed government debt rose to its highest level since the pandemic in July, while public sector wages also increased.

No July has seen debt this high since 2021, according to the Office for National Statistics (ONS).

This means there is a £3.1 billion difference between government revenue such as taxes and spending on public services. The government has pledged to borrow only to invest and reduce debt.

Even over a four-month period, the amount was higher than expected.

Independent forecasters at the Office for Budget Responsibility (OBR) had expected borrowing to fall by £4.7 billion to £46.6 billion. Instead, it reached £51.4 billion.

Although the government collected more money from income tax, this was offset by higher costs for public services and social welfare.

This was due to higher government spending, which the OBR said “appears to be associated with strong growth in public sector wages”.

The trend in government spending is likely to continue.

“Central government spending figures are still very preliminary at this time of year. Nonetheless, they suggest that government spending in 2024-25 is likely to be significantly higher than forecast in March 2024,” the OBR said.

The ONS added that the cost of carrying this debt, measured in interest payments, has fallen.

What Does It Mean?

Rachel Reeves, the chancellor of the exchequer, is widely expected to raise some taxes in her first budget in October after she flagged a £22bn black hole in the public finances despite better-than-expected economic growth in recent weeks.

Today’s figures and comments from the Treasury are likely to reinforce those expectations, as they illustrate the difficult decisions facing Ms Reeves.

“Today’s figures are further evidence of the bleak legacy left by the last government,” said Darren Jones, the chancellor of the Treasury.

“This year there is a £22bn black hole in the public finances, a decade of economic stagnation, the national debt is at its highest level since the 1960s and taxpayers’ money is being wasted paying interest on the debt rather than on our public services.

“We are making the tough decisions necessary to repair the foundations of our economy, modernise public services and rebuild Britain so we can deliver more to people across the country.”

However, data released last week showed a healthy economy with low inflation and unemployment and stronger-than-expected growth.