UK borrowing higher than forecast in June as debt interest costs soar
The ONS said interest payable on debt jumped to £16.4 billion due to a large rise in Retail Prices Index (RPI) inflation impacting index-linked government bonds.
June borrowing was higher than the £17.6 billion expected by most economists and the £17.1 billion forecast by Britain's independent economic forecaster, the Office for Budget Responsibility (OBR).
Borrowing for the first three months of the financial year to date stood at £57.8 billion, £7.5 billion more than the same three-month period in 2024.
Richard Heys, acting chief economist at the ONS, said: 'The rising costs of providing public services and a large rise this month in the interest payable on index-linked gilts pushed up overall spending more than the increases in income from taxes and national insurance contributions, causing borrowing to rise in June.'
The ONS said so-called compulsory social contributions, largely made up of national insurance contributions (NICs), jumped by £3.1 billion to £17.5 billion last month – the highest ever recorded for June.
In the first three months of the financial year to date, these compulsory social contributions rose to £48 billion, up £7.5 billion year on year and marking another record.
It followed the move by Rachel Reeves in April to increase NICs for employers, which has seen wage costs soar for firms across the UK as they also faced a rise in the minimum wage in the same month.
Public sector net debt, excluding public sector banks, stood at £2.87 trillion at the end of June and was estimated at 96.3% of gross domestic product (GDP), which was 0.5 percentage points higher than a year earlier and remains at levels last seen in the early 1960s.
Darren Jones, Chief Secretary to the Treasury, said: 'We are committed to tough fiscal rules, so we do not borrow for day-to-day spending and get debt down as a share of our economy.'
But the figures will stoke fears the Government will be forced to hike taxes in the autumn budget.
Economist Rob Wood, at Pantheon Macroeconomics, said the Chancellor has a 'major problem' to overcome, 'created by U-turns on previously planned spending cuts and possible downgrades to OBR growth forecasts this autumn'.
He said: 'We estimate that the Chancellor's £9.9 billion of headroom has turned into a £13 billion hole, meaning that Ms Reeves would need to raise taxes or cut spending by a little over £20 billion in the autumn budget to restore her slim margin of headroom.
'We expect 'sin tax' and duty hikes, freezing income tax thresholds for an extra year in 2029 and a pensions tax raid – reinstating the lifetime limit on pension pots and cutting relief – to fill most of the hole.'
Shadow chancellor Sir Mel Stride said: 'Rachel Reeves is spending money she doesn't have.
'Debt interest already costs taxpayers £100 billion a year – almost double the defence budget – and it's forecast to rise to £130 billion on Labour's watch.'
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Telegraph
2 hours ago
- Telegraph
Record number of farms shut in wake of inheritance tax raid
A record number of farms were forced to close for good this year after Rachel Reeves's tax raid made the future of thousands of rural businesses unviable. A total of 6,365 agriculture, forestry and fishing businesses have closed over the past year, according to the Office for National Statistics (ONS), the highest since quarterly data was first published in 2017. The majority of these closures took place during the first six months of the year after Ms Reeves, the Chancellor, announced in October that she would cut the amount of inheritance tax relief available to family farms. Just 3,190 businesses in the sector have been set up over the same period. It leaves a net loss of 3,175, indicating the number of farms is shrinking at the fastest pace on record. Victoria Atkins, the shadow environment secretary, said the farm closures were a result of 'Labour's disastrous tax policies'. 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James Grindal, a 55-year-old third-generation farmer in South Leicestershire, said the poor weather and barrage of costs mean new farmers and entrepreneurs are reluctant to set up businesses in the industry. He said: 'Yields are quite a bit down this year, it has been so dry – we have not had decent rain for four or five months. 'People have been beaten from post to pillar. Whichever way you turn you seem unwanted. 'The Government is not over-supportive of us, with inheritance tax relief disappearing.' Mr Grindal's 84-year-old father still works on the farm and remains a part-owner. However, he warned that the Chancellor's tax raid meant that when his father dies, the family will be unable to invest in the farm as planned. Mr Grindal said: 'He is still actively involved in the farm – he still sits on tractors occasionally, why shouldn't he own a bit of the land he has worked hard to own? Out of nowhere [this tax was] dropped on us. 'When he passes away we are going to have to pay a fair bit of tax on that. It will probably stop us from doing some of what we are doing. 'I could understand the tax if we were going to sell it. But we are not, we are going to keep growing corn and feeding people.' Currently, family farms do not incur inheritance tax, receiving full relief on the usual 40pc rate. Under the changes introduced by Ms Reeves which take effect from April 2026, inheritance tax will be charged at a rate of 20pc, above a threshold of £1m. Farmers have objected that their businesses are typically cash-poor and low-margin, meaning they will be forced to sell chunks of their land to settle the bill. Mr Grindal said that the tax changes meant his teenage sons would be even more reluctant to take on the family business. 'There are not many people coming new into the industry. I've got two boys, 19 and 17, and I very much doubt they will come into farming,' he said. 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'Farmers trying to modernise or diversify are blocked at every turn – by red tape, by National Insurance rises, by a government that talks growth while pulling out the foundations beneath it. 'Still, the countryside carries on. New businesses are opening. People are holding on. But grit isn't a strategy. What's needed now is simple: stability, clarity, and a government willing to listen – before more farms are lost and more families are forced out.' Michael Oakes, who sold his dairy business last year and now runs a beef herd in the West Midlands, said the rising demand for renewable energy was also compounding farmers' woes. He added: 'You've got some landlords taking land out of food production to put into solar.' Ms Reeves's tax change, which alongside a similar reduction in the relief for family businesses is set to raise up to £520m per year for the Exchequer, caused immediate political ructions with farmers driving tractors into central London to protest outside Parliament. 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Coin Geek
4 hours ago
- Coin Geek
Bad week for UK: ‘Crypto' ATM crackdown, BTC sell-off
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The report, published Saturday, stated that the U.K. Home Office plans to develop an official digital asset storage system to handle BTC sales and other digital currencies. This is part of a broader effort by the U.K. government, under Prime Minister Keir Starmer's Labour Party, to fill a much-talked-about £22 billion ($29 billion) 'black hole' in the U.K.'s public finances. Selling off over £5 billion worth of BTC would undoubtedly dent this figure, but the rumored move met with a swift and negative response from key voices in the digital asset and finance space. On Monday, trade association CryptoUK called on the government to take 'a long-term view,' arguing that the plan to sell off the nation's confiscated crypto stockpile 'would run contrary' to the country's goal of becoming a digital asset innovation hub. 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UK still values cash despite growth in digital payments This week, Link, the U.K.'s leading cash access and ATM network, published the results of research into current customer payment and spending habits. It found that 'while contactless card payments are seen as the most convenient and quickest form of payment by a significant majority of consumers, cash is seen as the most reassuring for staying within a budget and fully understanding the cost of shopping too.' According to the research, almost two-thirds of consumers (65%) said cash protects them from fraud, compared to (22%) contactless card and (18%) digital wallets. While contactless, via card, remained 'the most preferred payment method for consumers,' with 40% choosing this option, this number was slightly down on previous LINK research. The publication suggested this 'may reflect the growing popularity of digital wallets such as Apple Pay or Google, which increased over the same period.' 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Telegraph
6 hours ago
- Telegraph
Britain will benefit from Indian migrants, says Modi
The UK will benefit from the arrival of more skilled workers from India under a new deal, Narendra Modi has said. India and the UK have agreed an arrangement which will make it easier for people from each country to go to the other and work on a temporary basis. The Indian prime minister said the deal will 'inject new energy into the service sectors of both countries' and the UK economy will 'benefit from India's skilled talent'. He confirmed a deal had been agreed on the so-called double contributions convention (DCC) as he signed a broader UK-India free trade deal alongside Sir Keir Starmer at Chequers in Buckinghamshire on Thursday. Sir Keir faced accusations of implementing a two-tier tax system when the DCC issue came to light in May. The deal means Indian workers employed by an India-based employer will be able to work in the UK for up to three years without paying National Insurance. They will continue to pay into Indian social security during that period, with reciprocal rules in place for UK workers who go to India. The change was a key demand made by Indian negotiators but it prompted a backlash from some opposition politicians in the UK who claimed it risked undercutting British workers. The deal comes a matter of months after Labour imposed higher National Insurance on British companies and follows calls from within Labour for the party to toughen its immigration stance amid the rise of Reform UK. Rachel Reeves, the Chancellor, increased National Insurance contributions for employers in last year's Budget in order to raise an extra £25bn in tax. The change took effect in April this year. The Tories have argued the move has suffocated economic growth. Speaking alongside Sir Keir at Chequers, Mr Modi said they had 'reached a consensus on the double contribution convention'. 'This will inject new energy into the service sectors of both countries, especially in technology and finance,' he said. 'It will promote ease of doing business, reduce cost of doing business and increase the confidence of doing business. 'Additionally the UK's economy would benefit from India's skilled talent. 'These agreements will enhance investments and generate new employment opportunities in both countries.' The Government said the arrangement 'is not expected to have a long-term impact on net migration'. Jonathan Reynolds, the Business and Trade Secretary, said it was 'completely false' to claim British workers could be undercut. On BBC Radio 4's Today programme he said: 'On this issue, I can tell you without a shadow of a doubt if you were to hire an Indian worker they would pay exactly the same taxes as a British worker, you would have higher costs because of the visa charges, the NHS surcharge. 'It is completely false to say any British worker is undercut by this deal. I would never agree a deal that undercuts the people I represent or grew up with. That is completely wrong. 'The specifics of this are that a person on a temporary secondment from an Indian company to the UK or a UK company to India pays into their own social security systems for a short period of time if they are here on a temporary basis.'
