Higher tax receipts drive better than expected borrowing, but high net debt highlights weakened state of public finances

Higher tax receipts, and lower borrowing by local authorities, mean that borrowing in June was lower than expected, but government net debt hitting 100 per cent of GDP first time since 1961 illustrates the tough economic inheritance for whoever wins the next General Election, the Resolution Foundation said today.

Borrowing in June was £18.5 billion – the third highest figure for June since records began, but still £2.7 billion below the OBR’s March forecast. The better than expected borrowing data was partly driven by higher tax receipts, both in June (up £2.9 billion on the OBR’s forecast) and over the fiscal year to date (up £7.7 billion).

As a result, borrowing is now £7.5 billion lower than forecast for the year to date.

Despite this, government net debt hit 100 per cent of GDP for the first time since 1961 (with last month’s data being revised down), which when combined with higher interest rates has driven the weakened state of the public finances.

The Foundation adds that while two-year gilt yields have fallen back in recent days they remain much higher than seen over the past decade rising recently off the back of the higher interest rates. As a result, higher debt interest payments are likely to continue to weigh on the public finances in the years ahead.

Cara Pacitti, Senior Economist at the Resolution Foundation, said:

“Better than expected borrowing in June, driven by higher tax receipts, caps a largely positive set of recent economic data, with inflation falling faster than expected last month.

“But the bigger picture is one of the public finances being under severe strain, with net debt hitting 100 per cent of GDP, and the rising cost of servicing debt squeezing out other priorities for spending.

“The positive borrowing news is unlikely to lead to fresh tax cuts, whatever politicians promise. Whoever wins the next General Election is on track to face a tough economic inheritance.”.