The UK government saw its borrowing soar in June well beyond a record £39 billion, prompting anger and fears over fiscal sustainability. The Office for National Statistics (ONS) announced that borrowing reached £20.7 billion for the month. This was £6.6 billion higher than the same month last year. This new increase takes total borrowing for the first three months of this financial year to £57.8 billion. It amounts to a £7.5 billion real terms increase on the same period in 2024.
This month’s borrowing figure is the second highest ever recorded for June since monthly records started in 1993. Only June 2020—a month weighed down by the effects of COVID-19 on both public health and the economy—can claim a higher borrowing total. The ONS attributes this rise to increased spending on public services and debt interest payments, which have outpaced revenue generated from taxes.
Despite a £14 billion per year boost in National Insurance revenue in April, this is nowhere near enough to cover the additional spending. Debt interest payments alone now cost taxpayers about £100 billion a year, almost twice the £58 billion that the country’s defense budget has been cut to.
Chancellor Rachel Reeves is likely to be feeling the fire as she prepares for the autumn Budget. Fresh estimates show she needs to raise at least £15 billion and as much as £25 billion to make her fiscal rules meet. Recent policy reversals on welfare are making it harder to promote robust economic growth. This lag would put them much further behind fiscal targets, risking increased taxes or decreased spending as a result.
This warning about the sustainability of our public finances has also been sounded by their fellow economists. Mel Stride stated,
“Given that she is struggling to stick to existing spending plans and we doubt the gilt market will tolerate significant increases in borrowing, she will probably have to raise taxes instead.”
With public finances already straining to the limit, any hint of a softening labor market will increase the risk of falling tax receipts. Kerr noted that this trend could persist as “the recent weakness in the labour market is weighing on receipts” and cautioned that “underlying economic growth remains weak.”
“Rachel Reeves is spending money she doesn’t have. Debt interest already costs taxpayers £100bn a year – almost double the defence budget.”
The pressure on public finances is compounded by signs of weakness in the labour market, which may negatively affect tax receipts. Kerr noted that this trend could persist as “the recent weakness in the labour market is weighing on receipts” and cautioned that “underlying economic growth remains weak.”