Government borrowing above expectations and highest since pandemic as public sector pay rose

Government borrowing rose to the highest amount since the pandemic in July, official figures show, as public sector pay increased.

Not since 2021 has there been a July with such high borrowing, according to data from the Office for National Statistics (ONS).

It means there was a £3.1bn difference between what the government took in from things such as taxes and how much was spent on public sector services. The government has committed to borrowing only to invest and to bring down debt.

Money blog: Top chef shares Yorkshire pudding secrets

The sums are also higher than expected when looked at across a four-month period.

Independent forecasters the Office for Budget Responsibility (OBR) expected borrowing to be £4.7bn less and come in at £46.6bn. Instead, it reached £51.4bn.

Why has borrowing gone up?

While the government took in more money from income tax – that was offset by the increased cost of public services and benefits.

It’s been attributed to higher-than-forecast spending by government departments, which the OBR said “appears related to strong growth in public sector pay”.

The trend of government spending is expected to continue.

“Data on central government spending remain highly provisional at this time of year. Nevertheless, they indicate that departmental spending for 2024-25 could significantly exceed the March 2024 forecast,” the OBR said.

The cost of borrowing that debt, measured by interest payments, was reduced, the ONS added.

What does it mean?

Despite better-than-expected economic growth in recent weeks Chancellor Rachel Reeves is widely expected to raise some taxes in her first October budget having said there is a £22bn black hole in the public finances.

Today’s figures and comments from the Treasury are likely to add to that expectation as they illustrate the difficult choices Ms Reeves faces.

“Today’s figures are yet more proof of the dire inheritance left to us by the previous government,” chief secretary to the Treasury Darren Jones said.

“A £22bn black hole in the public finances this year, a decade of economic stagnation, and public debt at its highest level since the 1960s, with taxpayers’ money being wasted on debt interest payments rather than on our public services.

“We are taking the tough decisions that are needed to fix the foundations of our economy, modernise our public services and rebuild Britain so we can put more money back into people’s pockets across the country”.

Data released last week, however, showed an economy in good health with lower inflation and unemployment and greater growth than had been expected.