Government borrowing has increased to higher than initially expected in a time when pay and costs for public services have risen. This has caused an imbalance in the money borrowed compared to what the government spends.
Spike in Borrowing
The month of July saw the largest borrowing figures since 2021, coming in at £3.1 billion, the Office for National Statistics reported. This signals a trend of increase in the overall borrowing.
Autumn Budget Decisions
The uncertainty around spending and borrowing has sparked speculation around what will be announced in the autumn budget, introducing a level of uncertainty about policies.
Economists Sceptical
Economists are suggesting ‘tough choices’ will have to be made, referring to potential tax rises or cuts in public spending. The only money the government can spend is what it has coming into the exchequer or what it borrows.
Tax Rises?
There are suggestions that tax rises will likely happen in the future. This is a direct consequence of the increased rises in costs of services and debt costs.
Labour’s Stance on Tax Rises
The chancellor stated some taxes will be increased. The expectation is those with the broadest shoulders will carry more of the burden than lower paid members of society.
What Taxes Won’t Be Touched?
Labour’s stance and what the chancellor has said previously is that income tax, VAT and national insurance will not be increased.
Positive Increases in Takings for the Exchequer
Jessica Barnaby, the public sector finances expert at the ONS says income tax receipts had grown “strongly”, which will give Reeves some additional breathing space.
Overall Tax Intake Increases
Tax intake rose to £2.1 billion in July, a sign of a strengthening economy. If this trend continues, the public finances should improve.
Debt Interest Falls
In addition to income tax receipt increasing, the debt interest payments decreased in July. This is a deceptive fact though.
Rises in Costs Offsets Positive Markers in the Budget
The inflation rise in benefits and the costs increasing with public services has offset any positive outcomes of interest payments and increased income tax receipts.
Social Takings Fell in July
National Insurance recently cut by the last Conservative government meant a £1.1 billion drop in income for the government.
Economists Predictions Off
Economists were off with £1.1 billion higher borrowing in July by the UK government. Hinting of a trend into the coming months.
Borrowing Usually Lower in July
Self assessment income for the government is usually quite high in July, following the end of the previous financial year.
How Much Does Self Assessment Add?
This July, self assessments raised £1.8 billion for the UK government according to the Office for National Statistics.
Economists Say UK Spending High
Chief UK economist at Pantheon Macroeconomics, Rob Wood, said public spending is “already overshooting Budget forecasts”.
Predictions for Tax Rises
Wood added “further revisions could easily change the picture, but Chancellor Rachel Reeves will likely have to raise taxes and borrow more in the medium term to cover spending more on public services.”
Tough Choices for Labour
Senior research economist at the Institute for Fiscal Studies, Isabel Stockton, says “tough choices” will have to be made in the upcoming budget.
Fiscal Rules of the Government
Ms Reeves will have to base her decisions on the government’s own fiscal rules, designed to give confidence and stability to the financial markets.
Conservative Legacy
Chief secretary to the Treasury, Darren Jones, states the figures are “yet more proof of the dire inheritance left to us by the previous government”. Showing Labour’s frustration with the current state of financial affairs of the UK.
Public Finance Hole
Ms Reeves has previously said she will have to raise taxes due to a £22 billion black hole in public finances. Conservatives have disputed this, saying Labour have not been accurate with these figures.
National Debt Levels
The Office for National Statistics has told the public that the UKs national debt is the highest since the 1960’s.
Interest on Central Government Debt
Debt payments were £7 billion which is one of the highest amounts payable since records began in 1997.
Autumn Budget Decisions
Overall, costs have risen and public services are costing more. This will put pressure on Ms Reeves to make some tough decisions in the Autumn budget.
Brace for Impact: The Tax Increase Labour Denied Has Arrived, Reeves Delivers a Grim Outlook
Rachel Reeves delivers the gloomy news, and citizens have to accept the inevitable. The tax increase might complicate finances for some households and businesses. Brace for Impact: The Tax Increase Labour Denied Has Arrived, Reeves Delivers a Grim Outlook
Russia Issues Ultimatum to UK Over Ukraine’s Use of British Arms
Russia has threatened to attack British targets if Ukraine uses UK-supplied weapons amid rising tensions and the recent arrest of a British man charged with spying for Russia. Here’s the full story. Russia Issues Ultimatum to UK Over Ukraine’s Use of British Arms
Tommy Robinson Sparks National Outrage With Far-Right ‘We Want Our Country Back’ Protest in London
Police had their work cut out at a recent protest led by Tommy Robinson in London. Full story. Tommy Robinson Sparks National Outrage With Far-Right ‘We Want Our Country Back’ Protest in London
Featured Image Credit: Shutterstock / Ascannio.
The images used are for illustrative purposes only and may not represent the actual people or places mentioned in the article.