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 the government’s spending.
Spike in Borrowing
The Office for National Statistics reported that July saw the largest borrowing figures since 2021, coming in at £3.1 billion. This signals a trend of increasing overall borrowing.
Autumn Budget Decisions
Uncertainty about spending and borrowing has sparked speculation about what will be announced in the autumn budget, introducing a level of uncertainty about policies.
Economists Sceptical
Economists suggest ‘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 come 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?
According to the Office for National Statistics, self-assessments raised £1.8 billion for the UK government this July.
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 has not been accurate with these figures.
National Debt Levels
The Office for National Statistics has told the public that the UK’s national debt has been the highest since the 1960s.
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.
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