The government borrowed £16bn in June, £7.9bn less than a year earlier, in a rare piece of good news for the new prime minister as he announced plans to cut VAT on household electricity bills.
The figure, released by the Office for National Statistics (ONS), came in below the £16.3bn forecast by the Office for Budget Responsibility (OBR), largely because of lower inflation-linked debt interest costs. But the ONS cautioned that total debt remained high by historical standards and close to the annual value of the UK economy.
“UK borrowing fell to £16bn in June, below forecasts, as Burnham announced VAT cut on electricity bills.”
Ruth Gregory, deputy chief UK economist at Capital Economics, called it “a rare piece of good news” for Andy Burnham and his chancellor, John Healey. “Overall, there’s no escaping the fact that the public finances are fragile and that there is limited scope for extra borrowing,” she added.
Burnham used the breathing space to unveil a fresh tax cut: from 1 October, VAT will be removed from domestic electricity bills, funded this year by cancelling the digital ID programme. Healey said the move was part of a commitment to “work in lockstep to meet the fiscal rules with a buffer against uncertainty”.
“Fiscal control is the first duty of any chancellor. It is mine. And fiscal credibility is the bedrock for economic stability and for national security,” Healey said in a statement.
The improved borrowing numbers did little to calm bond markets, however. Shortly after Burnham said he would use “any flexibility within” Labour’s fiscal rules to support public investment, the yield on 10-year government bonds rose above 5%, hitting 5.03% before slipping back to 5.01%.
Shadow chancellor Sir Mel Stride attacked the new government, saying Labour had “maxed out the nation’s credit card and sent borrowing soaring”. “If Andy Burnham and John Healey are really serious about the future of our economy then they must get borrowing under control,” he said.
Despite the June improvement, borrowing so far this financial year stands at £57.6bn, £2.7bn above the OBR’s forecast. James Smith, chief UK economist at ING, told the BBC’s Today programme that fact was “a reminder of the challenges that the new chancellor and the new prime minister face”, adding that the autumn Budget would involve “lots of tough choices to be made”.
Burnham and Healey have both pledged to stick to the fiscal rules drawn up by former chancellor Rachel Reeves, but with spending pressures looming, analysts expect the new administration to walk a tightrope between market confidence and its own policy ambitions.
