Cost of public services drives up government borrowing

The rising cost of public services and benefits caused government borrowing to surge by more than expected in July, official figures show.

Borrowing, the difference between spending and tax income, hit £3.1bn last month, the highest level for July since 2021.

The increase was £1.1bn higher than what most economists had predicted, leading to speculation of what tax and spending decisions the chancellor will announce at the autumn Budget.

The Office for National Statistics (ONS) also revealed the UK’s national debt remained at its highest level since the early 1960s.

Jessica Barnaby, deputy director for public sector finances at the ONS, said income tax receipts had grown “strongly” and debt interest payments had fallen last month.

However, she added this was more than offset as “the cost of public services and benefits continued to increase”, leading to higher borrowing.

Borrowing is usually lower in July compared to other months because the government has gathered a high number of self-assessed income taxes by that point in the year.

Higher government spending this year, though, means this is the fourth highest year-to-July borrowing since monthly records began in January 1993.

Rob Wood, chief UK economist at Pantheon Macroeconomics, said the latest borrowing figures showed public spending was “already overshooting Budget forecasts”.

“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,” he added.