New Chancellor given pre-Budget challenge as borrowing jumps unexpectedly

The fiscal squeeze facing new Chancellor John Healey ahead of his inaugural Budget has been laid bare as official figures showed government borrowing unexpectedly rose to £1.8 billion last month.

The Office for National Statistics (ONS) said government borrowing stood at £1.8 billion in July, £700 million or 68.7% higher than a year ago and confounding expectations.

Most economists had forecast zero borrowing last month while the independent fiscal forecaster, the Office for Budget Responsibility (OBR), had predicted a £500 million surplus.

The borrowing hike came despite a record July for income tax receipts.

In the first four months of the financial year so far, borrowing was also more than the OBR forecast, at £56.7 billion, though this was £6 billion or 9.6% billion lower than a year earlier, thanks also to a £2.7 billion downward revision to data for the first three months.

It has left total UK debt just shy of the £3 trillion key milestone, at a mammoth £2.985 trillion, or 94.1% of gross domestic product (GDP).

The data shows the fiscal headache facing Mr Healey as he prepares his first Budget on October 28.

Mr Healey said: “Fiscal discipline is the bedrock of our UK economic stability and national security, which is why we are committed to meeting our fiscal rules, with a buffer against global uncertainties.

“We are cutting the deficit faster than any other G7 economy while giving people a bit of breathing space with cost-of-living pressures and focusing support to get young people into work.”

The figures come days after Prime Minister Andy Burnham said the new Manchester-based satellite office of Downing Street will take over responsibility for growth while the Treasury will focus on controlling the public finances.

In an interview with The Times, Mr Burnham said the Treasury’s dual duties of growing the economy and controlling public finances hampered its ability to do either.

July is traditionally a bumper month for income tax receipts, after January, given the second payment deadline for self-assessment at the end of the month, and hit £17.1 billion last month – up £1.7 billion on a year ago, according to the ONS.

Spending outweighed the tax boost, with another £2 billion spent on social benefits compared with a year ago, while the interest of government debt payments also rose £700 million to £7.7 billion last month.

Grant Fitzner, chief economist at the ONS, said: “Borrowing was slightly higher this month than in July last year, with spending growth outpacing higher receipts, including from self-assessed taxes which often feed in more strongly in July.”

But the ONS added income tax receipts may also filter through to the August data due to some delayed July self-assessment payments.

Thomas Pugh, chief economist at RSM UK warned taxes would need to rise for the Government to keep the nation’s finances on track, with rising yields on government bonds, or gilts, also pushing up long-term borrowing costs.

He said: “The commitment to sticking to the fiscal rules means further tax rises are inevitable come the autumn Budget.

“The risk is that more borrowing to spend fuels inflation and pushes up gilt yields further, leaving the new Chancellor having to borrow more just to stand still.”

Published: 21/08/2026 by Radio NewsHub