Two by-election defeats have made it a miserable morning for the Tories, even if they did manage to cling on in Uxbridge. But they’ve had better-than-expected news on another front. This morning’s update from the Office for National Statistics (ONS) reveals that public sector net borrowing has come in lower than what was forecast at the March Budget: £18.5 billion in June, compared to the Office for Budget Responsibility’s (OBR) prediction of £21.1 billion.
Borrowing last month was £0.4 billion less than the year before, while interest payments on government debt saw a huge drop: from £20 billion last June down to £12.5 billion this June. Don’t be fooled: these are still some of the highest numbers for June on record (both the third highest borrowing numbers and interest payable numbers, to be exact). But the picture is still looking better than was expected a few months ago, with the government continuing to undershoot borrowing estimates, which came in more than £7 billion below what was expected between April and June this year.
Still, the headline numbers tell a prettier picture this morning than the details. Borrowing cost in June fell below forecasts largely thanks to higher tax receipts, which totalled £77.4 billion; this was‘£5.6 billion more than in June 2022 and £2.9 billion more than…forecast by the OBR’, according to the ONS. Tax receipts were up by £4.6 billion compared to June last year, ‘with increases in income tax, corporation tax and VAT receipts of £2.0 billion, £1.6 billion, and £1 billion, respectively’. A reminder, then, that Rishi Sunak and Jeremy Hunt have taken the tax burden to record levels: not just higher than any time in the 1970s, but higher than any time in postwar history (including under Boris Johnson’s government).
It’s tax hikes, not spending cuts or booming economic growth, that have seen overall borrowing costs move, slightly, in the right direction. This has enabled the ONS to revise its end-of-May 2023 estimate ever so slightly down for public sector net debt as a ratio of GDP, from 100.1 per cent to 99.9 per cent. But the Prime Minister’s pledge to reduce the national debt is something every taxpayer will be acutely aware of. These tax hikes coupled with price hikes have left so many feeling worse off, despite signs of rising wages.
Unfortunately for Sunak, the pledge he made at the start of the year – to get debt falling – remains the least likely pledge to be achieved. That total keeps mounting, and is up to £2.33 trillion last month. There are no signs that the debt pile is going to shrink any time soon. Debt as a percentage of GDP may fluctuate (made much easier by the government’s rather loose fiscal rule to get this falling by the fifth year of OBR forecasts, on a rolling basis), but the total amount is only set to go up.
That total figure is not helped by the fact that the government keeps spending money, the primary example being Hunt’s huge expansion of childcare subsidies back in the March Budget. So far, when there’s a little more fiscal headroom than previously thought, it seems to be spent by the government, rather than being returned to taxpayers.
But might June’s net debt update allow for some hope that tax cuts could be coming down the line? With interest rates still set to rise further, the chancellor is still likely to struggle to find the cash to come up with a meaningful cut – unless he’s willing to make some spending compromises elsewhere. With elections at the forefront of everyone’s minds today, no doubt ministers will be thinking about these trade-offs, and which ones will suit them best when the public are asked to vote again.
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