The UK government borrowed £16bn in June, £7.9bn less than a year earlier and slightly below the £16.3bn forecast by the Office for Budget Responsibility, in a rare boost for the new prime minister Andy Burnham as he unveiled plans to cut VAT on household electricity bills.
Yet the Office for National Statistics, which published the figures on Tuesday, warned that total public sector debt remained close to £3tn – roughly the annual value of the entire UK economy. Borrowing so far this financial year has reached £57.6bn, £2.7bn above the OBR’s projection.
“UK borrowed £16bn in June, £7.9bn less than last year, but total debt remains near £3tn, Healey says.”
Ruth Gregory, deputy chief UK economist at Capital Economics, called June’s borrowing figure “a rare piece of good news” for Burnham and his chancellor, John Healey. But she added: “Overall, there’s no escaping the fact that the public finances are fragile and that there is limited scope for extra borrowing.”
James Smith, chief UK economist at ING, told the BBC’s Today programme that borrowing running ahead of the OBR’s forecasts was “a reminder of the challenges that the new chancellor and the new prime minister face”. He predicted a “difficult picture” at the autumn Budget, with “lots of tough choices to be made”.
The improved monthly figure came as Burnham announced that VAT on domestic electricity bills would be cut from 5% to zero from 1 October. Healey confirmed the policy would be funded this year by savings from cancelling the digital ID programme.
Both Burnham and Healey have pledged to stick to the fiscal rules drawn up by former chancellor Rachel Reeves, though the prime minister said on Monday he would use “any flexibility within them” to support public investment. The comments prompted a rise in the yield on 10-year government bonds, which hit 5.03% before slipping back to 5.01%.
In a statement, Healey said: “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.” He added that he and Burnham had agreed to “work in lockstep to meet the fiscal rules with a buffer against uncertainty”.
The challenge for the new leadership is whether the improved borrowing figure can be sustained as spending pressures mount and bond markets remain jittery over the direction of tax and spending policy.