Tax rise fears grow after unexpected borrowing surge

Fears that Rachel Reeves will be forced to raises taxes in her first Budget this Autumn rose on Wednesday when official figures showed the Government borrowed billions of pounds more than forecast last month.

The Office for National Statistics (ONS) said the Treasury had to borrow £3.1 billion in July to keep the wheels of Government turning. The deficit was £1.8 billion more than in July 2023 and the highest July borrowing since 2021.

July is usually a strong month for the public finances because it is when many self assessment income tax bills are paid. The economics watchdog, the Office for Budget Responsibility, had forecast borrowing of just £0.1 billion for July, while City economists pencilled in around £1.5 billion.

The ONS said one reason for the shortfall was Jeremy Hunt’s cuts in National Insurance rates last year which reduced revenue from compulsory social contributions by £1.1 billion to £13.8 billion.

The chancellor warned that “difficult decisions” must be taken to repair public finances in her October 30 Budget.

Darren Jones, chief secretary to the Treasury, said: “Today’s figures are yet more proof of the dire inheritance left to us by the previous government. We are taking the decisions that are needed to fix the foundations of our economy”