Latest news with #government borrowing
Daily Mail
22-07-2025
- Business
- Daily Mail
Reeves admits there is no 'ceiling' on the tax burden as government borrowing hits new record outside Covid in June - with £16bn spent on debt interest alone
dodged on whether the tax burden could go even higher today - as government borrowing hit a new record for June outside of Covid. Challenged on whether taxes at 38 per cent of GDP represented a 'ceiling', the Chancellor stressed that her rules only covered spending and debt. Appearing before peers, she suggested the level could only be reduced by boosting the economy - which currently looks to be slowing down. Ms Reeves was giving evidence to the the Lords Economic Affairs Committee amid mounting concerns about the state of the government's finances. The public sector borrowed £20.7billion last month, far higher than the £17.6billion analysts had pencilled in. The level was £6.6billion higher than a year earlier and only behind the height of the pandemic in 2020 since comparable figures began in 1997. Alarmingly for the Chancellor, the surge was driven by debt interest as well as higher spending. Servicing debt cost £16.4billion over the month, more than double the number for the previous June. Bank of England governor Andrew Bailey tried to calm nerves this morning, insisting rising interest rates on government borrowing was a global phenomenon and the UK was not 'out of line'. Borrowing for the first three months of the financial year to date stood at £57.8billion, £7.5billion more than the same three-month period in 2024. Challenged on whether taxes at around 38 per cent of GDP represented a 'ceiling', the Chancellor stressed that her rules only covered spending and debt Ms Reeves is desperately hunting for options to increase taxes as she faces an estimated £30billion black hole in the public finances at the Autumn Budget. The tax burden is already set to hit a new high as a proportion of GDP after the last Budget imposed a £41billion increase - the biggest on record for a single package. Labour has ruled out increasing income tax, employee national insurance or VAT. Tory peer Lord Blackwell pointed out that previous governments had not managed to 'sustain' the tax burden at more than 35 per cent of GDP. Highlighting the the level was on track to reach 38 per cent, he asked whether Ms Reeves had a Do you have a 'ceiling or a view on what's the right level of taxation once you get through the current debt problem'. But Ms Reeves replied that the tax to GDP ratio was 'not a target... that reflects the fiscal rules'. 'Those are the things that are my constraints, the anchor for fiscal policy are those two fiscal rules rather than a tax to GDP ratio,' she added. Ms Reeves said: 'The best way to reduce that ratio but still have public services that we need is to increase the denominator, increase GDP. That is where all my focus is.' The Chancellor flatly refused to rule out a wealth tax, arguing that no minister should get into speculation ahead of the Budget. And she vowed to remain tough on the government's debt levels, insisting there is nothing 'progressive' about spending £100billion a year on interest payments, 'often to US hedge funds'. Many believe the Chancellor will opt to extend the long-running freeze on tax thresholds in the Autumn. The policy, in place since 2022, is due to end in 2028-29. By that point it will have dragged an extra 4.2million people into the tax system as wages rise. Ms Reeves has been carefully avoiding ruling out a 'wealth tax' - with backbenchers pushing for 2 per cent levy on assets worth more than £10million. However, she is thought to be privately opposed to the move, with tax experts and Cabinet ministers warning it would only drive away more wealth people from Britain. A raid on pensions is still said to be on the table, with fears that the Treasury is again looking at slashing reliefs. Currently higher-rate earners are spared 40 per cent tax on money that is put into retirement funds. However, reducing the relief to the 20 per cent basic rate could raise around £15billion for the government. The idea was rejected at the Budget last year, but Ms Reeves' situation has dramatically worsened. Chief Secretary to the Treasury Darren Jones 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. 'This commitment to economic stability means we can get on with investing in Britain's renewal, including fixing our NHS, strengthening our national defence and building hundreds of thousands of affordable homes through our plan for change.' But shadow chancellor Mel Stride said: 'Rachel Reeves is spending money she doesn't have. 'Debt interest already costs taxpayers £100billion a year – almost double the defence budget – and it's forecast to rise to £130 billion on Labour's watch. 'Labour's jobs tax and reckless borrowing is killing growth and fuelling inflation – paving the way for more tax hikes and more borrowing in the autumn. Make no mistake – working families will pay the price for Labour's failure and costly U-turns. 'Only the Conservatives, under new leadership, will break this cycle. Only the Conservatives believe in sound money and low taxes.'
The Independent
22-07-2025
- Business
- The Independent
The government's unexpected record borrowing will hit us all – but where?
For Rachel Reeves, the hits keep on coming. The latest? Higher than expected government borrowing last month. The figures are enough to make anyone wince. The government spent £20.7bn more than it received in tax receipts in June, which is the second highest figure since monthly records began in 1993 – and £6.6bn more than in the same month in 2024. To put it in context: that number would cover the government's share of building the £38bn Sizewell C nuclear power plant, with enough change left over to throw in a new hospital or two. In just a month. You can probably guess when it was worse: June 2020, slap bang in the middle of the pandemic when the state was subsidising the wages of the furloughed British workforce. The extra debt incurred as a result of that is a major cause of the problems the chancellor is currently grappling with. The consensus forecast in the City was for borrowing of £17.5bn, but it should be said at this point that these figures are highly volatile, and tough to predict. The overshoot was principally caused by higher interest payments on the vast existing debt pile, particularly IOUs linked to the Retail Prices Index (RPI), an outdated and statistically dubious measure of inflation that is still making its presence felt in a very bad way. I said the hits keep on coming for the chancellor. But they're coming for us, too. Unless things improve, Reeves is going to have to sit down with her team to come up with some new and exciting ways to shaft us in the autumn Budget. The electorate won't easily forgive having its bills raised again. Trouble is, the way the public finances are going, the chancellor mightn't have much choice. The markets, which Britain relies on to fund its debt, are getting twitchy about the state of its public finances. Only a fool would take them on. Consider what happened to the fool who tried (that would be Liz Truss). 'Ten-year gilt yields briefly nudged up to 4.645 per cent, which is the market's way of saying it isn't impressed with the state of public finances,' said Russ Mould, from broker AJ Bell. 'Soaring debt interest payments haven't helped and the situation will further stir speculation that the government will have to put up taxes in the autumn Budget.' Speculation or certainty? The cry of ' tax the rich, they can afford it' will inevitably be heard. But there aren't enough of them to make a meaningful dent in the numbers, plus they'll be off if they get hit too hard. Reeves tried taxing businesses last time around, by hiking employer's national insurance contributions. Rising unemployment was the entirely predictable result. So now it's on you and me. I suspect that the thresholds at which people move into higher tax bands will remain frozen, which might well mean that next year's pay rise is worth a lot less than you hoped. What else? A raid on savings is possible. There has also lately been speculation about wealth taxes, with little to suggest how they might work. Reeves probably should raise fuel duty, which has been frozen forever and would raise a decent slug of cash, but I doubt that she will, She keeps promising not to hit 'working people', which that would do So I think stealth taxes will be the order of the day. Except, that people are getting wise to those. They see their impact in the diminishing amount left over at the end of the month after accounting for essentials, the price of which is rising uncomfortably fast. Kantar, the researcher, says the average family spends more than £5,000 annually on food with its measure of food price inflation jumping to 4.7 per cent. It does rather look like Number 11 is caught in Catch 22 situation in which almost every possible decision is bad, both economically and politically. But, wait – is there a way out? Well, as I said, these figures tend to be highly volatile. Inflation is also expected to fall in the tail end of the year, which means the cost of interest on those index linked bonds will fall. The Bank of England is expected to cut base rates, which will further help with the chancellor's debt interest bills. One final point to consider: while these figures were higher than the City expected, the government's borrowing in the current financial year (which starts in April) is still in line with the forecasts of the Office for Budget Responsibility, the 'independent' agency set up to mark the homework of Britain's finance ministers. That matters. So cross you fingers. This could yet turn around. Anything's possible, and if our economic fairy godmother is feeling kind, for a change we mightn't get hit quite so hard. But don't bank on it.
Bloomberg
22-07-2025
- Business
- Bloomberg
UK Borrows Billions More Than Expected, Bessent Calls for Fed Review
UK government borrowing came in more than forecast in June, a setback for Chancellor of the Exchequer Rachel Reeves that will fan speculation over potential tax hikes to shore up the public finances. A surge in debt-interest payments sent the budget deficit to £20.7 billion ($27.9 billion), the Office for National Statistics said on Tuesday, £6.6 billion more than a year earlier and well above the £17.5 billion economists surveyed by Bloomberg expected. Elsewhere, Treasury Secretary Scott Bessent said in a social media post Monday that there should be a review of the decision to renovate parts of the Federal Reserve headquarters in Washington. Today's guests, Marina Zavolock, Morgan Stanley Chief European Equity Strategist, Jasmine Groschl, Allianz Senior Economist, Eivind Kallevik, Norsk Hydro CEO. (Source: Bloomberg)
Zawya
22-07-2025
- Business
- Zawya
Sterling holds on to gains, investors mull rise in borrowing
The pound steadied on Tuesday, consolidating after the previous day's rally, as investors took stock of data that showed UK government borrowing soared in June, a reminder of the fragility of Britain's public finances. Sterling, which rose 0.6% on Monday, its biggest one-day gain in a month, was last at $1.3493, showing little change on the day. It was also steady against the euro , which was at 86.7 pence. Britain borrowed more than expected in June as high inflation added to the government's debt costs, according to official data that is likely to add to speculation about the need for fresh tax increases later this year. Public sector net borrowing totalled 20.7 billion pounds ($27.9 billion) last month, the data showed. This compares with a forecast of 17.1 billion pounds for June from the Office for Budget Responsibility, the budget watchdog. "These overshot expectations yet again, a fact that should refocus minds on UK fiscal sustainability risks, especially after warnings by the ONS that the 20.7 billion pound figure recorded represents 'the second-highest June borrowing since monthly records began in 1993, after that of June 2020'," analysts at Monex said. "As we have noted previously, this is not a sterling positive dynamic, leaving risks to the pound tilted to the downside ahead of Thursday's PMI release," they said. The borrowing figures added to a sense among investors that finance minister Rachel Reeves may have to raise taxes again later this year to remain on track to meet her targets for fixing the public finances. A separate report on Tuesday showed grocery inflation in Britain rose to 5.2% in the four weeks to July 13, up from 4.7% in last month's report and the highest since January last year, heaping more pressure on UK households. Market researcher Worldpanel by Numerator, which published the report, said just under two-thirds of households say they are "very concerned" about the cost of their groceries, and are switching to supermarket own-label products. The numbers align with data last week that showed nationwide consumer price inflation picked up more than expected in June, also hitting the fastest pace since January 2024. The Bank of England is expected to cut rates by a quarter point next week and at least one more time before the end of the year.
Reuters
22-07-2025
- Business
- Reuters
Sterling holds on to gains, investors mull rise in borrowing
LONDON, July 22 (Reuters) - The pound steadied on Tuesday, consolidating after the previous day's rally, as investors took stock of data that showed UK government borrowing soared in June, a reminder of the fragility of Britain's public finances. Sterling , which rose 0.6% on Monday, its biggest one-day gain in a month, was last at $1.3493, showing little change on the day. It was also steady against the euro , which was at 86.7 pence. Britain borrowed more than expected in June as high inflation added to the government's debt costs, according to official data that is likely to add to speculation about the need for fresh tax increases later this year. Public sector net borrowing totalled 20.7 billion pounds ($27.9 billion) last month, the data showed. This compares with a forecast of 17.1 billion pounds for June from the Office for Budget Responsibility, the budget watchdog. "These overshot expectations yet again, a fact that should refocus minds on UK fiscal sustainability risks, especially after warnings by the ONS that the 20.7 billion pound figure recorded represents 'the second-highest June borrowing since monthly records began in 1993, after that of June 2020'," analysts at Monex said. "As we have noted previously, this is not a sterling positive dynamic, leaving risks to the pound tilted to the downside ahead of Thursday's PMI release," they said. The borrowing figures added to a sense among investors that finance minister Rachel Reeves may have to raise taxes again later this year to remain on track to meet her targets for fixing the public finances. A separate report on Tuesday showed grocery inflation in Britain rose to 5.2% in the four weeks to July 13, up from 4.7% in last month's report and the highest since January last year, heaping more pressure on UK households. Market researcher Worldpanel by Numerator, which published the report, said just under two-thirds of households say they are "very concerned" about the cost of their groceries, and are switching to supermarket own-label products. The numbers align with data last week that showed nationwide consumer price inflation picked up more than expected in June, also hitting the fastest pace since January 2024. The Bank of England is expected to cut rates by a quarter point next week and at least one more time before the end of the year.
